The Nifty lost ground as soon as trading opened and closed sharply lower on November 29, marking a weak start to the December series. Expectations of below-5 percent GDP growth in the second quarter and the uncertainty over a US-China trade deal caused selling pressure.
The index closed way below 12,100 and formed a bearish candle that resembled a bearish belt hold pattern on the daily charts. On the weekly scale, it formed a bullish candle, as the index gained more than a percent during the week.
A bearish belt hold is formed when the opening price becomes the highest point of a trading day (intraday high) and the index declines throughout the session making the large body. The candle will either have a small or no upper shadow and a small lower shadow.
The index not only erased narrow gains of the previous two sessions but also closed below its 5-day moving average, hinting at an impending weakness and 11,990 will be a crucial level for further downside, experts say.
The Nifty opened moderately lower at 12,146.20, close to its intraday high of 12,147.40, and continued to slide to hit the day's low of 12,017.40. It closed at 12,056, down 95.20 points.
"Despite registering a bullish candle on the weekly charts, momentum appears to be weakening as trading range for the entire month remained 356 points, which can be a cause for concern," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
If the index manages a close below 11,990 levels in the next couple of sessions, then a correction shall get accelerated further, he said. In that scenario, an ideal target on downsides can initially be around 11,800.
For the time being, upsides shall remain capped around 12,160 levels unless the Nifty witnesses a strong breakout above the said level, Mohammad said. Traders are advised to remain neutral on the long side, whereas shorting can be considered on a close below 11,990 for a target of 11,800.
On the options front, maximum Put open interest was seen at 12,000 followed by 11,500 strike, while maximum Call open interest was at 12,500 followed by 12,600 strike.
Call writing was seen at 12,100 and 12,300 strike, while marginal Put writing was seen at 11,800 strike. The options data suggests a shift in the trading range for the Nifty in between 11,900 to 12,300.
India VIX declined by 0.66 percent to 13.89 levels.
The Nifty Bank was also caught in a bear trap but the fall was softer compared to the Nifty. The index fell 0.55 percent to close at 31,946.10 and formed a bearish candle on the daily charts, but bullish candle pattern on the weekly scale. It gained 2.7 percent during the week.
"The banking index took support around its previous swing high of 31,783 and rebounded piercingly, which is a positive sign for the index," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
"It made higher high for the seventh consecutive week and formed a big green candle on the weekly chart, which clearly shows strength in the index. Until it sustains above 31,783 levels, an upmove towards 32,500 and 32,800 levels cannot be ruled out."