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Technical View: Nifty forms bearish candle, can fall to 11,650 if Budget disappoints

Traders should remain neutral and buying on dips should be avoided, as technical outlook for the next couple of months is turning negative, says Mohammad.

January 31, 2020 / 05:48 PM IST

The Nifty opened strong only to lose ground in the initial hour and traded lower through the session to close below the psychological 12,000-mark on January 31, as traders remained cautious on the eve of the Union Budget.

The index closed below 50-day EMA for the second consecutive session and formed a bearish candle on daily charts, as the closing was lower than the opening value.

If the Budget disappoints, there could be more selling pressure that will drag the Nifty to 11,650, the 200-day moving average, experts say.

The Nifty opened sharply higher at 12,100.40 and hit an intraday high of 12,103.55, but erased the gains within the first hour and hit the day's low of 11,945.85. The index closed 73.70 points lower at 11,962.10.


The Nifty registered a strong bearish candle on daily charts, reinforcing the view that markets are in some sort of downtrend in progress since the record high of 12,430 registered on January 20, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory,, told Moneycontrol.

“Interestingly, on monthly charts, the index appears to have registered a Bearish Engulfing formation. So, in a sense, the market is heading into the major economic event with a bearish mindset, as candle formations across the time frame are negative," Mohammad said.

He said any disappointment from the Budget would lead to a major sell-off in the next trading session, which may see the index testing its 200-day moving average whose value is placed at around 11,650 in next session itself.

A market favourable Budget, on the other hand, may result in a temporary spike and ideally should lead to sideways consolidation, with best-case target of 12,272 for the next session, he said.

Considering the fact that market is going to witness wild swings in the next session, Mohammad advised traders to remain neutral and avoid buying on dips as technical outlook for the next couple of months is turning negative.

Since it is the beginning of a new series, the Options data is scattered at various strikes. Maximum Put open interest was at 12,000 followed by 11,500 strike while Maximum Call open interest was at 12,500 followed by 12,200 strike. Call writing was seen at 12,000 then 12,500 strike while Put writing was seen at 12,000 and 11,500 strike.

The options data indicates a wider swing in the market and the volatility is also likely to be higher ahead of the Budget, said Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services.

The India VIX moved up by 3.38 percent to 17.36 levels.

The Bank Nifty opened positive and outperformed the benchmark index, as buying was seen in selective stocks. The index closed 0.61 percent higher at 30,833.60 and formed a small-bodied candle on the daily scale.

"It has been consolidating in a wider trading range between 30,600 and 31,400 zones from the past nine trading sessions, as dips are being bought into while supply pressure was seen at higher levels. Going forward, immediate support for the Bank Nifty is placed at 30,600 and then 30,250; while sustainable move above 30,800 may lead to a bounce towards 31,100-31,300 levels," Taparia said.
Sunil Shankar Matkar
first published: Jan 31, 2020 05:32 pm
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