Technical View: Nifty forms bearish candle, closes below 10,800; 10,777 crucial for bulls

January 02
17:29 2019

The Nifty50 fell sharply on Wednesday after buying in last few sessions and closed tad below 10,800 levels following weakness in global peers and on profit booking.

All sectoral indices as well as broader markets caught in bear trap. Metal fell 3.4 percent on concerns of a slowdown in China and Auto lost 3 percent amid weak December sales while the Nifty Midcap and Smallcap indices dropped 1 percent each.

The weakness is likely to continue which could take the Nifty near 10,500 levels again, if the index trades below 10,923 levels, experts said.

The Nifty50 after opening lower at 10,868.85 followed by rangebound trade extended losses in afternoon and hit an intraday low of 10,735.05. The index managed to show some recovery from day’s low but still ended sharply lower by 117.60 points at 10,792.50 and formed bearish candle on the daily charts.

“Nifty50 appears to be struggling to get past its critical hurdle of 11,000 as it faltered on multiple occasions from around 10,950 levels as it was sold off in Wednesday’s session which resulted in a bearish candle,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said for the day the index appears to have found some support after testing the bullish gap zone of 10,764–10,747 levels registered on last December 27.

Hence, as long as the said index trades below 10,923 levels the possibility of breaching 10,534 remains higher and bullish outlook for the index shall not emerge unless it decisively clears the hurdle of 10,985 levels, he added.

According to Mazhar, aggressive traders with high risk appetite can consider short positions in the index with a stop above 10,950 on closing basis and look for a initial target of 10,535.

India VIX moved up by 6.97 percent at 16.39 levels. VIX has again spiked higher which is not giving comfort zones to bulls.

On the option front, maximum Put open interest (OI) was at 10,500 followed by 10,000 strike while maximum Call OI was at 11,200 followed by 11,000 strikes.

Call writing was seen at 11,000 followed by 11,200 strike while Put writing was seen at 10,500 strike followed by 10,600 strike. Option band signifies a broader trading range in between 10,650 to 11,000 zones.

“Nifty index formed a bearish candle on daily scale and negated its formation of higher highs of last four trading sessions. It remained highly volatile during the day and again moved near to its 50 DEMA,” Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited told Moneycontrol.

He said the index has been moving in a rising channel and finding multiple hurdles near to 10,950-10,985 zones from last couple of sessions. “Now it has to hold above 10,777 zones to witness an upmove towards 10,850-10,888 zones while on downside support exists at 10,650-10,600 zones.”

Bank Nifty failed to surpass its previous day high and witnessed selling pressure from higher levels. It formed an Inside Bar on daily scale and managed to closed above 27,000 at 27,174.70, down 217.70 points.

“Now the index has to hold above 27,000 zones to witness an upmove towards 27,350 then 27,500 zones while on the downside support exists at 26,850 then 26,666 zones,” Chandan said.

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