The Nifty corrected for the fourth consecutive session, falling below the 200-day moving average, placed at 11,685, on February 26 following a decline in global peers, as investors remained worried about the economy over coronavirus spread.
All sectoral indices closed in the red, with the Nifty Auto, Metal, IT and Pharma declining 1-2 percent. The broader markets also fell in line with benchmarks, as the Nifty Midcap index slipped over a percent.
The Nifty closed way below 11,700 ahead of expiry of February derivative contracts, and formed a bearish candle on daily charts as closing was below its opening level.
The sell signal registered on the Moving Average Convergence and Divergence, popularly known as MACD, on daily charts on February 24 turned out to be true.
Experts say there could be a pull-back rally as the index has fallen more than 3 percent this week, but if it breaks 11,614, the next support level, then there could be a further correction.
The Nifty opened sharply lower at 11,738.55 but attempted recovery in the afternoon to hit the day's high of 11,783.25. However, it failed to sustain the recovery and slipped again to hit the day's low of 11,639.60 in the late trade, especially after a correction in Dow Jones futures indicated a weak opening for US markets.
The index closed 119.40 points, or 1.01 percent, down at 11,678.50.
"Though at this point in time, buy signals are missing on lower time-frame charts, the Nifty appears to have stretched on the downside by abnormally trading away from its short term moving averages (5-day SMA at 11,903), which should ideally pave the way for a pull-back rally sooner than later. In the next trading session, if the Nifty opens in negative terrain, then it can make an intraday bottom somewhere in the zone of 11,640–11,600 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
However, if it closes below 11,614, then the next support for the index is available only at around 11,500. On the upside, if it manages to sustain above 11,783, then the upswing shall get extended to 11,900, he said.
For the time, Mohammad advised traders with a high-risk appetite to create long positions if the Nifty opens in a negative zone and trades between 11,640 and 11,615, with a stop below 11,600 on a closing basis.
India VIX moved up sharply by 8.05 percent to 18.26, which indicates more volatility in the coming sessions, experts say.
The options data indicated the shift to a lower trading range for the Nifty to 11,600-11,800 from 11,700-12,050.
On the options front, maximum Put open interest was seen at 11,700 followed by 11,500 strike while maximum Call open interest was at 12,000 followed by 11,900 strike. Significant Call writing was seen at 11,700 to 11,800 strikes and meaningful Put unwinding was seen at most of the immediate strikes.
The Bank Nifty opened on a negative note and remained volatile throughout the session. For the third consecutive session, it saw a smaller fall when compared to the benchmark index and formed a long-legged Doji candle on the daily scale. The index closed at 30,306.80, down 0.41 percent.
"A Doji candle indicates indecisiveness among market participants and a sustainable move above 30,500 may give a sign of relief for the bulls. However, a failure to move beyond 30,500 and a hold below 30,200 could result in an extension in ongoing correction towards 30,000 then 29,600 levels, while major resistance remains intact at 30,700 and then 31,000 zone," Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services, said.