Technical View: Nifty falls for 4th day in a row, forms strong bearish candle; crucial support seen at 11,000

Bears continued to dominate on Dalal Street for fourth day in a row on Friday as the Nifty50 after gap up opening suddenly fell sharply in afternoon and broke crucial support of 11,000 decisively, but managed to pull back some losses in later part of the session to close off day's low.

The free fall in Yes Bank after RBI's decision to end Rana Kapoor's term as CEO, and impact of rupee weakness and hardening bond yield started reflecting in NBFCs hit sentiment across sectors.

The Nifty Midcap index dropped 2.5 percent while Nifty Bank was down 2.6 percent and Realty lost 3.5 percent followed by Auto, Financial Service and Pharma.

The Nifty50 started off the day on a strong note at 11,271.30 and hit day's high of 11,346.80 following positive global cues and due to short covering, but suddenly crashed badly in afternoon to break 11,000-mark and hit an intraday low of 10,866.45 which last seen on July 9, showing a loss of 368 points intraday.

The index managed to recoup 2/3rd of losses in last hour of trade to close 91.30 points lower at 11,143.10.

"Nifty50 witnessed a sudden and surprising flash crash with a 480-point range before signing off the session with a High Wave kind of candle formation. At today’s low of 10866 it not only retraced 62 percent of entire rally from the lows of 10,417 registered in May 2018 but also almost tested 200-Day Moving Average whose value is placed around 10,750 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

He said usually corrections tend to end with this kind of classic panic and retracement levels it will be too early to conclude so.

Going forward if Nifty50 sustains above 11,025 levels for couple of trading sessions then we can look for bottoming out process and strength in this regard will be confirmed only on a close above 11,347 levels, according to him.

In case if the support of 11,025 is violated on closing basis then market participants should prepare for not only retest of Friday’s low placed around 10,866 but also for bigger cut towards 10,750 levels, Mazhar said.

India VIX moved up sharply by 10.92 percent to 15.53 and during the day it made a high of 16.92 which is the highest level in last seven months since February 20, 2018.

On option front, maximum Put open interest (OI) is at 11,000 followed by 11,100 strike while maximum Call OI is at 11,500 and 11,400 strikes. Call writing is at 11,200 followed by 11,100 strike while Put unwinding is at all immediate strikes.

"The index recovered by around 300 points from its panic lows but overall bears are keeping their tight grip on the market. It has also broken its support of 11,171 and till it doesn't cross and hold above 11,333 zones, overall weakness could remain intact for a decline towards 11,000 and lower zones," Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services Limited said.

Bank Nifty fell sharply to test its swing low of 25,052 marks. It has been making lower top - lower bottom formation on daily scale and resistances are gradually shifting lower. It corrected by more than 1,000 points during the session, before closing 680.45 points down at 25,596.90.

Taparia said now till it remains below 26,250 zones, overall weakness could continue with the decline towards 25,000 zones while major hurdles are seen at 26,165 then 26,500 zones.