The market ended with decent gains on February 3 after a sharp fall seen on February 1, which was triggered due to a lack of sufficient stimulus measures in the Union Budget.
Last week’s fall has led to Nifty reversing its uptrend as it closed below the trend reversal levels of 11,832 and the index formed a big red candle on the weekly charts.
This indicates that the selling was intense and the downtrend which has begun looks set to continue.
Technical indicators, too, are giving weak signals. The 13-day simple moving average, which was till recently trading above the 50-day simple moving average, has now cut it from above.
Momentum indicators like the 14-day RSI and MACD, too, are in decline mode, which is not a healthy sign.
Nifty could now head towards the next support of 11,500 in the near-term and if these levels do not find support, then Nifty could head towards 11,355 which is the 61.8 percent retracement levels of the recent up move that began in September 2019.
In the derivative segment, there has been a massive short build-up in Nifty future and Bank Nifty future segments last week.
Nifty put-call ratio too gave weak signals as it fell sharply to 0.86 from 1.42 levels in the week prior to last week.
The index options data suggests that support exists in the 11,700-11,500 range as maximum put OI is seen at these strikes.
Maximum call OI is seen at 12,000-12,200 strikes, suggesting resistance at these levels for the near-term.
To conclude, the short-term trend for Nifty remains bearish till the resistance of 12,200 is crossed decisively where we have seen aggressive call writing.
Here are two sell calls for the next 3-4 weeks:
Piramal Enterprises | Sell | LTP: Rs 1,351.40 | Target price: Rs 1,180 | Stop loss: Rs 1,495 | Downside: 13%
The stock yesterday broke down below its crucial support at Rs 1,400 on the back of above-average volumes, indicating that selling was intense.
Technical indicators like the MACD and 14-day RSI are in decline mode and giving weak signals. The stock also trades below the 13-day and 50-day simple moving average, which is a bearish signal.
In the derivative segment, there has been a buildup of shorts as OI increased by 4.2 percent, while the price fell by 6.9 percent.
Indiabulls Housing Finance | Sell | LTP: Rs 255.90 | Target price: Rs 220 | Stop loss: Rs 288 | Downside: 14%
In the derivative segment yesterday, there was a short build-up in Indiabulls Housing Finance future. OI increased by 16.3 percent, while the price fell by 7.7 percent. Derivative volumes increased by 64 percent.
Technical indicators, too, are giving weak signals as the stock has broken its recent supports of Rs 291 and has in the process moved below the 13-day and 50-day simple moving average.
Momentum readings like the 14-day RSI and MACD are in decline mode.
(The author is a technical analyst, HDFC securities)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.