Technical View: Nifty hits over 3-year low to form Long Black Day candle; 8,000 next crucial support

March 18
18:28 2020

The Nifty50 opened in the green but failed to hold onto the gains and extended losses for the remaining session on March 18 amid mounting coronavirus worries and recession scare.

The novel coronavirus is weighing heavily on investor sentiments around the world as Dow Jones futures fell 800 points and Asian and European markets saw sharp corrections. The Indian market is feeling the heat too as the number of reported cases jumped to 147.

COVID-19 has brought the global economy to a standstill with Morgan Stanley and Goldman Sachs expecting a recession in the offing.

Elsewhere, the Supreme Court of India maintained its ruling regarding the adjusted gross revenue (AGR) case.

“All dues as per our judgement will have to be paid, including interest and penalty,” the order stated.

It added that no self-assessment can be done and no further objection would be entertained.

Nifty broke its March 2020 low of 8,555 seen last week and closed below its crucial 8,500 levels to form a Long Black Day pattern on daily charts.

The index opened in the positive territory to record an intraday high of 9,127.55, but succumbed to profit-booking within a few minutes, falling consistently for the rest of the session. It touched an intraday low of 8,407.05, but managed to recover slightly to close at 8,468.80, down 5.56 percent.

Experts expect that the market would remain in the bear territory as there is a lot of pessimism due to COVID-19. According to them, 8,000 will be the next crucial support.

Volatility barometer India VIX closed at 63.95, up 1.64 percent, suggesting wild swings to continue going forward.

“Though no level seems to be sacrosanct enough to halt the selling pressure; technically speaking, Nifty needs to consolidate above 8,400 levels to prevent further damage as breach of this level shall drag down the index into the zone of 7,945 – 7,893 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

While on rallies, the zone of 8,900 – 9,130 can act as an initial hurdle and unless this zone is cleared, upside strength shall not be expected, he said.

As markets are witnessing accelerated selling pressure despite being in deeply oversold levels, investors are also advised to wait for some sort of consolidation around the particular level before nibbling into the stocks once again, Mazhar Mohammad added.

Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services also expects the pain to continue as RSI has broken its support levels.

“RSI also broke its strong support of 35 on monthly scale and if sustains below that, then we may see further sell-off in market. At the current juncture, there is no sign of reversal and thus we may see a continuation in fall towards 7,900 and then 7,500 levels,” he said.

Considering the overall scenario, he said traders should not look for bottom fishing as market is in strong bear grip and we are not seeing any sign of stability in market.

The broader markets also fell in line with frontliners. The Nifty Midcap index was down 5.5 percent and Smallcap index dropped over 6 percent.

Sectorally, Nifty Bank, Auto, FMCG, Auto, Metal, Pharma and Realty indices fell 3-6 percent.

On the options front, maximum Call open interest was at 12,000 then 10,000 strike while maximum Put open interest was at 8,500 then 9,000 strike. Call writing was seen at 10,000 and 9,500 strike while Put unwinding was seen at all the immediate strikes with minor Put writing at 8,000 strike. Option data indicates a shift in wider trading range in between 8,000 to 9,000 zone.

Bank Nifty continued its downward journey falling 2,300 points from its intraday highs. The banking index underperformed the benchmark index for the second consecutive session, falling 7.11 percent to close at 20,580.20 and formed a bearish candle on the daily chart.

The index also witnessed the formation of a Three Black Crows pattern on the daily scale, indicating complete dominance of bears.

“Currently, Bank Nifty is hovering around ‘Make or Break’ level of 20,500 – 20,600 zone on the monthly chart, which is the confluence zone of the previous swing high and 61.80 percent retracement level of its previous rally from 13,407 to 32,613. RSI Oscillator is giving a breakdown on the monthly scale (confirmation will come on a monthly closing basis),” Chandan Taparia said.

“If Bank Nifty closes below 20,500 zone, then we may see an extension in ongoing fall towards 18,000 – 17,500 levels. On the upside, resistance is continuously shifting lower and now 22,500 and 23,500 zone would be the immediate hurdle for banking index,” he added.

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