Market Analysis 2/08/2017

The Nifty rallied to a fresh record high of 10,137.85 on Wednesday but saw selling pressure soon after the Reserve Bank of India (RBI) slashed key rates by 25 bps and made a bearish candle, which closely resembles a Bearish Belt Hold kind of pattern, on daily charts.

A Bearish Belt Hold pattern is formed when the opening price becomes the highest point of the trading day, which in Wednesdays trading session was a record high of 10,136.30 and rose slightly to a record high of 10,137.85. After opening, the index then witnesses selling pressure throughout the trading session.

In this pattern, there is small or no upper shadow and the index declines throughout the trading day which makes up for the large body and a small lower shadow.

In Wednesday's price action, Nifty50 opened at 10,136.30, which was slightly below its record high of 10,137.85. Hence, there was no or insignificant upper shadow.

It slipped over 80 points to touch its intraday low of 10,054.20 which made a slightly long lower shadow. The index bounced back from its 5-day exponential moving average placed at 10,061 to close at 10,081.50, down 33 points.

Traders are advised to stay long and initiate buy on dips strategy towards any fall towards 10,000 levels. Although, Bearish Belt Hold is a trend reversal pattern but doesn't go short in this market because it still requires confirmation.

As long as Nifty trades above 10,000 levels, the upside remains intact and investors can initiate long positions for the next possible target placed at 10,350 and keep a stop loss at 9,944.

The Nifty registered a Bearish Belt Hold kind of formation as market participants appear to have read the RBI Monetary policy as a neutral event. However, it is imminent for the index to sustain above 10,087 levels in the next trading session to prevent damage to the short-term trend.