Technical View: Nifty forms bearish candle, sell-off likely if index breaks 14,357


The Nifty50 snapped its five-day winning streak and corrected more than one percent to form a bearish candle on the daily charts as closing was lower than opening levels on January 15. Weak global cues despite US unveiling plans for a $ 1.9-trillion stimulus package weighed on sentiment.

Selling pressure was seen across sectors with the Nifty IT, metal, pharma and financial services indices declining 1-2 percent, while the broader markets also fell 1 percent. For the week, the Nifty50 gained 0.6 percent and formed a Doji pattern on the weekly scale as closing was near the opening level.

The Nifty50 opened flat at 14,594.35 and hit an intraday high of 14,617.45 in early trade but immediately slipped into the red to hit the day’s low of 14,357.85. The index fell 161.90 points or 1.11 percent to close at 14,433.70.

Experts say further sell-off is possible if the index breaks 14,357 in the coming session and if the trend favours the bears, then a sharp correction of 10-15 percent can’t be ruled out.

Intraday traders should create fresh shorts if the Nifty trades below 14,357 levels for more than 30 minutes on January 18  for a modest target of 14,220 by placing a stop loss above intraday high, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at told Moneycontrol.

“Bulls were choked in Friday’s session as the Nifty failed to witness buying on declines, which apparently looks like a sign of changing trend. Moreover, today’s fall seems to have erased almost all the intraweek gains which resulted in a Grave Stone Doji kind of formation on weekly charts with a close near to the lowest point of the week,” Mohammad said.

If the index closes below 14,357 in the next session then it shall confirm the trend reversal in the favour of the bears, he said. In that scenario, the Nifty may get initially dragged towards 14,050 – 13,950 kinds of levels, he said.

However, if the recent high of 14,653 levels proves to be a multi-week top then eventually a bigger correction of 10-15 percent can’t be ruled out, according to him.

In the near term, “strength in the index shall not be expected unless the Nifty closes above 14,617 levels”. Meanwhile, any attempt for a pullback can be an opportunity for aggressive traders with a high-risk appetite to create positional shorts for bigger targets with a stop above 14,617 on a closing basis, he said.

India VIX was up by 4.61 percent from 23.02 to 24.09 levels. Volatility spiked by around 24 percent this week, creating a pause in the positive momentum. It needs to cool down below 20 to again get the bullish stance going, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

On option front, maximum Put open interest was seen at 14,000 followed by 13,500 strike, while maximum Call open interest was at 15,000 followed by 14,500 strike. Call writing was seen at 14,500 then 14,600 strike, while Put writing was seen at 13,500 and unwinding at 13,700 strike. The options data indicated that the Nifty could see an immediate trading range of 14,300 to 14,600 levels in coming sessions.

The Bank Nifty opened lower at 32,508.90 and hit an intraday low of 32,044.35. It moved in a wide range of 500 points and saw some recovery in the last hour of the day. It closed the day with losses of 273 points at 32,246.80 and formed a bearish candle on the daily scale and a Doji candle on the weekly scale, which indicates the absence of follow up at new high territory.

“The Bank Nifty has to hold near to 32,000 to witness an upmove towards 32,500 and 32,750, while on the downside, support is seen at 31,750 and 31,500,” Taparia said.

Positive setup was seen in Tata Motors, IDFC First Bank, Bharti Airtel, Apollo Hospitals, UPL, PVR, Piramal Enterprises and Grasim, while weakness was seen in Tech Mahindra, HCL Technologies, Apollo Tyres, NMDC, Hindalco, Asian Paints, Motherson Sumi, UltraTech Cement, Divis Labs, Havells, Jubilant Foodworks, Colgate Palmolive, Mahanagar Gas and Nestle India, he added.