Traders should avoid long positions on the index whereas positional shorting opportunity should be considered on a close below 11,500, Mazhar Mohammad of Chartviewindia.in said.
The Nifty50 erased all its gains in the last hour of trade and closed flat with a negative bias amid mixed global cues on September 18, the last day of the week, dented by weakness in banking and financials.
The index formed a bearish candle that resembled a Bearish Belt Hold pattern on daily charts while for the week, it gained 0.4 percent and formed a Doji candle on the weekly scale.
A Bearish Belt Hold pattern is formed when the opening price becomes the highest point of the trading day 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.
A Doji candle indicates indecisiveness among the bulls and the bears. Bounces were being sold in the absence of follow-up buying interest.
The Nifty50 started off strong at 11,584.10, which was also the intraday high and stayed strong. But in the last hour of the trade, the index erased all the gains to hit the day's low of 11,446.10 before closing the session at 11,505, down 11.10 points.
Experts said 11,500 should act as the psychological support going ahead and if it breaks, then there could be a sharp correction.
Traders should avoid long positions on the index, whereas positional shorting opportunity shall be considered on a close below 11,500, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
"This kind of indecisive and bearish candle formations after retracing 62 percent of the fall from the highs of 11,794 – 11,185 is hinting that rally is losing its steam," Mohammad said.
Unless the Nifty closes above 11,618, upward momentum should not be expected. A close below the psychologically important support of 11,500 shall set the tone for a sharper correction, which can drag the index below 11,185.
However, some meaningful support is placed between 11,334 and 11,278 levels on a closing basis, he said.
A close above 11,620 can extend the upswing, initially towards 11,672 but with a potential target to retest recent swing highs of 11,794, according to Mohammad.
India VIX declined marginally by 0.27 percent from 20.10 to 20.04 levels.
After the correction and volatility, the Nifty trading range, indicated by the options data, lowered to 11,300-11,700 from 11,400-11,800 levels.
On the option front, maximum Put open interest was at 11,500 followed by 11,000 strike, while maximum Call open interest was at 12,000 followed by 11,600 strike. Call writing was seen at 12,000 then 11,800 strike while Put writing was seen at 11,500 then 11,200 strike.
The Bank Nifty failed to surpass the immediate hurdle of 22,500 and witnessed sharp selling pressure in the last hour towards 21,750 to hit the day low of 21,784.90 after opening at 22,439.35.
The index fell 289.35 points or 1.30 percent to close at 22,031 and formed a bearish candle on the daily as well as the weekly scale. In fact, the index has been underperforming the last couple of trading sessions. It corrected 2 percent for the week.
"The Bank Nifty has broken its multiple support of 22,000 and given the lowest daily close in the last 20 trading sessions. Now if it sustains below 22,000, then weakness can be seen towards 21,750 then 21,500 while on the upside, key hurdles are likely to be at 22,500 and 22,750 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.Positive setup was seen in Cipla, Lupin, Divis Labs, Cadila Healthcare, Apollo Hospitals, M&M, Grasim, Tech Mahindra, Wipro, Balkrishna Industries and UPL while weakness was seen in Petronet LNG, PNB, M&M Financial, Shree Cement, BHEL, Kotak Mahindra Bank, etc, he added.