Nifty slips below 20-EMA! Where is the index headed?

Nifty on Wednesday formed a large bearish candle on the daily chart after seeing a gap-down start. In the process, it tested sub-19,450 level and slipped below its 20-day exponential moving average (EMA) after a gap of five months, giving the bears an edge. The silver lining was it respected the trend line at around 19,420. The level of 19,500, followed by 19,420-400 range, would now act as an immediate support level while 19,600 would act as immediate hurdle for the index, analysts said. 

"Nifty has closed below the crucial support of short term moving average i.e. 20 EMA after five months but respected the trend line around the 19,420. We feel it is prudent to reduce aggressive longs and wait for clarity. Traders should keep a close watch on the US markets for cues. We feel it is prudent to reduce aggressive longs and wait for clarity," said Ajit Mishra, SVP - Technical Research, Religare Broking.

For the day, the NSE barometer closed at 19,526.55, down 207 points or 1.05 per cent.

Nifty also closed below its 20-DMA of 19,622, which was acting as support since the up move started in April, said Jatin Gedia – Technical Research Analyst at Sharekhan said.  "This is a sign of short-term weakness," Gedia said.

A daily momentum indicator has made a negative crossover, which is 'a sell' signal.  "The indicator is still away from the equilibrium line, indicating that the weakness can continue.  On the hourly charts, NIfty has witnessed a bounce back from the lower end of the falling channel. But, it is unlikely to result in a trend reversal. We expect Nifty to continue with the weakness. Crucial support to keep handy are 19,420-19,400 and, on the upside, 19,600-19,630 is the immediate hurdle zone," Gedia said.

Nifty's slipping below its consolidation range indicates bearish momentum, said Rupak De, Senior Technical analyst at LKP Securities.

"The index has also dropped below the 21EMA, reinforcing the bearish outlook. The RSI is signalling a bearish momentum. On the downside, support is observed at 19,500, a decisive fall below 19,500 may create further negativity; while resistance is seen at 19,600," De said.