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Technical View: Nifty falls 2% to form Long Black Day candle, sideways trade seen

Mazhar Mohammad of advised traders to remain neutral on long side.

August 31, 2020 / 07:21 PM IST

A man reacts as he looks at a screen displaying the Sensex results outside the Bombay Stock Exchange building, Mumbai, March 12. REUTERS

The Nifty50 saw its biggest single-day fall in three months on August 31 as traders booked profits amid as reports of another faceoff between India-China along the Line of Actual Control.

After coming close to 11,800 in early trade, the index closed below the crucial 11,400-mark, wiping out almost all gains made in the last six sessions to form a large bearish candle, which resembled a Long Black Day formation on the daily chart.

The Nifty50 opened higher at 11,777.55 and hit an intraday high of 11,794.25. But soon found itself in a bear hug in late morning trade to hit the day’s low of 11,325.85. The index signed off at 11,387.50, down 260.10 points or 2.23 percent.

Experts see consolidation in the coming days but if the index breaks the day’s intraday low of 11,325, then selling pressure could mount.

Traders should remain neutral on the long side whereas positional shorting can be considered either on rallies in the 11,559-11,614 zone or on a close below 11,325 for a target of 11,111, said Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at told Moneycontrol.

"However, this 469-point loss from the intraday highs of 11,794 led to the test of its 20-day exponential moving average from where some stability and bounce can be expected in next session," Mohammad said.

It was critical that the counter sustained above 11,325 levels, he said. In that scenario, some sideways consolidation can be expected in the next trading session but the breach of 11,325 can initially drag the Nifty towards 11,111 levels, he said.

Volatility also moved up sharply due to geo-political tensions and profit-booking concerns in the market. India VIX rose by 24.44 percent from 18.34 to 22.83 levels.

Options data indicated that there has been a downward shift in trading range of the Nifty to 11,000-11,800 from 11,200-12,000 levels earlier.

On options front, maximum Put open interest was at 11,000 followed by 10,500 strike, while maximum Call open interest was at 12,000 followed by 11,500 strike. Marginal Call writing was seen in 11,700 and 11,500 strike while Put unwinding was seen at immediate strike.

The Bank Nifty opened positive beyond 25,000 but witnessed a sharp selling pressure of around 1,800 points from its intraday high of 25,200 to 23,400.

The index fell 769.50 points or 3.14 percent to close at 23,754.30 and formed a large bearish candle, which resembled an Outside Bar along with a Dark Cloud Cover kind of pattern on daily scale.

"The pattern formation indicates that now the bear are attacking from higher zone after a decent rally of last two weeks. The Bank Nifty negated the formation of higher lows on daily scale and lost most of its previous day's gain. Now it has to cross and hold above 24,000 levels for a move towards 25,000-25,200 while on the downside now key support exists at 23,200 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in ONGC and TCS while weak structure was seen in Bosch, Apollo Tyres, Aurobindo Pharma, Canara Bank, Mcdowell Holdings, ICICI Prudential, Motherson Sumi, ACC, Ambuja Cements, Cipla, Manappuram Finance, etc, he added.

Sunil Shankar Matkar
first published: Aug 31, 2020 06:14 pm