The index looked firmly in the bear grip, as it has been forming lower highs and lower lows for the past few sessions. The index tested the sub-9,800 level in intraday trade but eventually closed above it.
Analysts noted that the index has been respecting its 50-day exponential moving average (EMA) for last seven months and that should be a critical short-term support for the index. At Thursday’s close, the 50-day EMA stood at 9,782.
“The Nifty50 last tested its 50-day EMA on June 30 and bounced back smartly from there. Now, the index is back to its 50-day EMA. If it does not respect this support, then the market may slip further into the bear grip. We have turned cautious after the index broke its previous swing high of 9,928,” said Chandan Taparia of Motilal Oswal Securities.
Taparia believes a break above this level could bring some stability to the market.
At close, the index was at 9,820.25, down 87.80 points or 0.89 per cent.
Mazhar Mohammad, Chief Strategist for Technical Research & Trading Advisory, Chartviewindia.in, said the Bank Nifty recoiled from critical support levels during the session, and thus a pullback on Friday cannot be ruled out.
“Major technical setback is likely if the Nifty50 closes below the 9,725 level in next session, which may open up the doors for another 300-point fall. Hence, it is inevitable for the bulls to sustain above the 50-day SMA on a closing basis,” Mohammad said.
Taparia said the index has formed a Bearish Head & Shoulder pattern on the lower degree chart and that has a negative implication. He said as long as the index does not negate the formation of lower tops and lower bottoms, weakness may persist.