Budget 2020

Chart Reading: These levels on Nifty may signal buy opportunity

NEW DELHI: Nifty50 might have turned volatile of late, but a few trends are holding up well for the index for a few months now. Analysts said an eye on them could help traders gauge the direction of the market going ahead.

These include the 10-week exponential moving average (10-day EMA), the 50-day EMA, days of consecutive fall in the index and the quantum of slippage in the index. These indicators broadly show the 14,200-14,400 range as key support for Nifty.

On the weekly charts, the 10-week EMA has acted as a strong support since May 2020, especially since October 2020. That support has offered fresh entry opportunities to traders in the past. The 10-week EMA was placed at the 14,344 level on Friday.


“The weekly 10-period EMA has been offering support to the index since October 2020, as per the weekly chart. On the last three occasions, Nifty50 halted its weakness and showed a sharp upside bounce from near this support – in early November 2020, late December 2020 and in February 2021 — after mildly violating the support level. Currently, Nifty50 is sliding down towards this support at 14,345, and one may look for the opportunity of another upside bounce unfolding from the lows,” said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

50-day EMAETMarkets.com

On the daily chart, whenever Nifty has tested its 50-day exponential moving average (EMA) in the recent months, it has bounced back quickly. The moving average has always offered a fresh entry opportunity in the past. That 50-day EMA was placed at 14,396 level on Friday. Nifty50 came close to that level on Friday with a low of 14,468, before recovering and closing at 14,529.

“Keep an eye on 50-day EMA. It can offer stability and bounce to the index going ahead,” said Chandan Taparia of Motilal Oswal Securities.

Price wise, the index has not corrected more than 8- 9 per cent since May 2020, ICICIdirect suggested in a February 24 note.

The recent correction in the Nifty50 between February 16 and 22 shaved off 4.17 per cent from Nifty50. The January correction from 14,644 on January 20 to 13,634 on January 29 led to a 6.89 per cent drop in the index.

An 8 per cent correction from say the life-time high of 15,431 in the Nifty50 would take it to 14,197 level.

One more trend to observe here is that the index correction has not lasted for more than a week since May 2020. The February correction lasted five sessions while the pre-Budget selloff earlier in January lasted six days.

ICICIdirect in a February 24 note said any dip from here on should be capitalised on to accumulate quality largecaps in a staggered manner.

“We expect an extended breather from here on to get anchored around the key support threshold at 14,300 level. Hence, any dip from here on should be capitalised on to accumulate quality largecaps in a staggered manner. Eventually, we expect the index to challenge the life-time high of 15,432 and then it will gradually head towards our revised target of 15,700 in the coming months, as it is the implied target of the pre-Budget consolidation in the 14,650-13,600 range,” the brokerage said.