The Nifty50 remained under selling pressure throughout session and finally lost nearly 2 percent on January 27, thus continuing its downtrend for fourth straight day. Banking and financials, auto, metals and pharma stocks were hit hard.
The index closed below the psychological level of 14,000 for the first time in January, ahead of the expiry of current month's derivative contracts on January 28, and formed a Bearish Belt Hold pattern on the daily charts.
A 'Bearish Belt Hold' pattern is formed when the opening price becomes the highest point of the trading day (intraday high) and the index declines throughout the trading day making up for the large body. The candle will either have a small or no upper shadow and a small lower shadow.
Nevertheless, as market is heading for events like economic survey and budget, some short covering in expiry session can't be ruled out, said Mazhar Mohammad of Chartviewindia, who advised traders to remain neutral but intraday traders with high risk appetite can short below 13,900 levels and look for a modest target of 13,750 with a stop above 14,010 levels.
The Nifty50 started off the day lower at 14,237.95 (which was also an intraday high) and extended losses as the day progressed to hit a day's low of 13,929.30 in the last hour of the trade. The index finally settled at 13,967.50, the lowest level since December 29, falling 271.40 points or 1.91 percent.
"Nifty50 registered a Bearish Belt Hold formation as it continued its slide into 4th session in a row. In this process, it has tested its 34-day exponential moving average with an intraday low of 13,929 levels. Importance of this average stems from the fact that way back in last October Nifty tested and consolidated around the said average for three sessions before resuming its rally from the lows of 11,535 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
Hence, in the next trading session if Nifty manages to defend 13,929 levels then there can be a slight hope of consolidation around these levels, he said, adding in case, if bulls fail to defend the said levels, then weakness shall get extended towards 13,700 levels where 50-day simple average is placed.
He feels upsides for the time being shall remain capped around 14,250 levels and a close above 14,250 levels can be considered as an initial sign of strength in the market.
India VIX moved up by 4.96 percent from 23.24 to 24.39 levels. "Surge in volatility due to selling pressure and ahead of the Budget 2021, could keep volatile swing with limited upside in the market," said Chandan Taparia of Motilal Oswal Financial Services (MOFSL).
On options front, maximum Put open interest was at 13,500, followed by 14,000 strike while maximum Call open interest was at 14,700 followed by 14,500 strike. Call writing was seen at 14,100 then 14,200 strike while Put writing was seen at 13,900 and 13,500 strike.
Option data indicated that the Nifty could see an immediate trading range of 13,800 to 14,200 levels.
Bank Nifty opened higher at 31,236.25, but failed to hold 31,250 levels and tumbled sharply to hit an intraday low of 30,165.65 by breaking its 50-DMA in the latter part of the day.
Selling pressure was seen across all the banking stocks and the Bank index closed with losses of 913.90 points or 2.93 percent at 30,284.50. It formed a bearish candle on daily scale and has been making lower top - lower bottom from the last three sessions.
"Now till Bank Nifty remains below 31,000, bounce could be sold for the downside move towards 30,000 and 29,500 while on the upside hurdles are seen at 31,250 and 31,500," Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.
Positive setup was seen in United Breweries, NALCO, Cummins India, Wipro, Mcdowell Holdings, ITC, HCL Technologies and Cipla while weakness was seen in LIC Housing Finance, DLF, Titan, IndusInd Bank, Hindalco, Jindal Steel & Power, Asian Paints, HDFC, Tata Chemicals, Bata India, Reliance Industries and Jubilant Foodworks, he added.Disclaimer: "Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol."