Traders should remain neutral on the long side and look to short this market on a close below 12,000 levels, says Mazhar Mohammad.
The Nifty failed to hold on to sharp early gains and closed moderately lower on December 2 following a weak Q2 GDP data and subdued auto sales in November.
The market also turned cautious on the eve of the three-day meeting of the Monetary Policy Committee. All sectoral indices, barring metals, closed in the red, with auto, IT and PSU banks among the prominent losers.
The index closed a tad lower than 12,050, though it held on to crucial support of 12,000 and formed a bearish belt hold pattern on the daily charts for the second consecutive session, as the closing value was much lower than the opening tick.
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 a large body. The candle will either have a small or no upper shadow and a small lower shadow.
It indicates that the market may remain in a consolidation mode in the near term and if it breaks crucial support, then there could be sharp selling pressure in the coming sessions, say experts.
The Nifty opened sharply higher at 12,137.05, which was also an intraday high, backed by Bharti Airtel and Reliance Industries; but wiped out the gains after the initial hour and hit the day's low of 12,023.70 amid choppy trade. The index closed at 12,048.20, down 7.85 points.
"The formation of bearish belt hold suggested weakening momentum from recent life-time highs of 12,158 levels. Hence the said index shall remain vulnerable for a sell-off as the oscillator set-up even on weekly charts turned bearish," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
He said in the near term, critical support for the index is placed around 13-day exponential moving average, whose supporting value for the next trading session is around 12,006.
Therefore, correction shall get accentuated if the bears manage to push the index below the said average on closing basis. In such a scenario, the initial target can be around 11,800 but a breach of this level can easily drag down the index further towards 11,725 levels, he added.
Upsides shall remain capped around 12,160 unless the Nifty manages a strong breakout above it, Mazhar Mohammad said.
Traders, for the time, are advised to remain neutral on the long side and look to short this market on a close below 12,000, he said.
On the options front, maximum Put open interest was seen at 12,000 followed by 11,500 strike, while maximum Call open interest was seen at 12,500 followed by 12,000 strike.
Marginal Call writing was seen at 12,100 and 12,400 strike, while Put writing was seen at 12,000 followed by 12,100 strike. The options data suggests a shift in the trading range between 11,900 and 12,300.
India VIX moved up by 2.18 percent to 14.20 levels. "Till VIX remains below 15 zone, then we may see a continuation in ongoing optimism in the coming days too," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
The Nifty Bank corrected in the first half of the session but again it took support around its previous swing highs and rebounded in the latter half. Eventually, the banking index ended with a loss of 0.23 percent at 31,871.45 and formed a small red body candle on the daily scale."Despite a corrective move of the last two sessions, the overall trend remains positive and thus traders shall use intraday dips as a buying opportunity. Until it sustains above 31,783-31,660 zone, an upmove toward 32,500 and 32,800 levels cannot be ruled out," Taparia said.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.