Technical View: Nifty cracks 13% to form bearish candle, next crucial support seen at 7,341

March 23
19:28 2020

In perhaps the darkest month in the history of Indian markets, the Nifty50 witnessed its second lower circuit in morning trade after the country was put on a virtual lockdown due to COVID-19.

The market was already coming off from one of its worst weeks where it dropped 13 percent. Even SEBI’s measures to curb volatility and short selling failed to offer any respite.

The fear among investors only seem to be growing, as today’s fall, was steeper than that observed by global peers, who are, as per reports, dealing with a much more severe case of the pandemic.

Moreover, unlike the previous instance, Nifty failed to recover after the circuit and continued to fall towards 7,600 levels.

India VIX moved up by 7.28 percent to 71.98 levels which suggests that volatile swings could continue in the market.

At the current juncture, the market is in strong bear grip and is not respecting any support levels. Experts expect the correction to continue in the near term. As of now, there is no sign of reversal and thus traders should refrain bottom fishing in this market.

The Nifty50 opened sharply lower by 800 points to 7,945.70 and gradually extended selling pressure to hit a day’s low of 7,583.60. The index closed at 7,610.25, down 1,135.20 points or 12.98 percent.

“As all critical supports have breached now, Nifty may initially be heading towards 7,341 levels. This is 50 percent retracement level of the entire rally from the year 2008 lows of 2,252 – 12,430 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

At this juncture, as no bounce is sustaining it looks prudent on the part of market participants to wait for at least multiday consolidation before looking for long side trades whereas long term investors should commit funds only with the knowledge of the fact that there can be more downsides, he advised.

On the options front, maximum Call open interest was at 12,000 then 10,000 strike while maximum Put open interest was at 8,000 then 7,500 strike. Call writing was seen at 9,500 and 9,000 strike while Put unwinding was seen at all the immediate strikes.

Option data indicated that the Nifty could trade in a wider range of 7,000-8,200 levels.

Bank Nifty underperformed the benchmark index for the second consecutive session and fell by around 17 percent, which is the worst fall for banking index since inception. The index closed at 16,917.70 and formed a big bearish candle on the daily chart.

The banking index fell below 17,000 mark after a formation of an Inside Bar pattern on the daily scale, which is a negative sign for the index. Bank Nifty closed below its support of 78.60 percent retracement level (17,517) of its previous rally from 13,407 to 32,613 and yet there is no sign of a reversal in index.

“Looking at the current scenario, traders should avoid ‘catching the falling knife’ as ongoing correction may continue towards 16,000 – 15,500 levels. On the flipside, resistance is now shifting lower to 18,300 – 19,000 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

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