After opening lower, Nifty remained volatile with a negative bias for major part of the session on January 21 after International Monetary Fund cut India's GDP growth forecast to 4.8 percent for FY20. Global equity peers were also under pressure after Moody's cut rating for Hong Kong markets.
Bears continued to dominate for second session in a row as the index closed below 12,200 levels and formed small bearish candle on daily charts as closing was lower than the opening value.
In addition, the Moving Average Convergence and Divergence, popularly known as MACD, also gave a 'sell' signal on the daily charts, with a breakdown below middle Bollinger band.
Hence, experts advised traders to book profits if the index goes into the earlier bullish gap area of 12,044-12,032 levels.
The Nifty50 after opening lower at 12,195.30 extended selling pressure and remained volatile throughout session. The index hit an intraday high of 12,230.05 in morning and low of 12,162.30 in the afternoon, before closing 54.60 points lower at 12,169.90.
"Fresh sell signals were generated on MACD chart with a breakdown below middle Bollinger band. Ineterestingly, in recent past, whenever Nifty closed below its middle Bollinger band the index was dragged down further towards its lower Bollinger band whose value is placed around 12,008 kind of levels. Hence, more damage can be expected if Nifty fails to close above 12,230 levels in next trading sessions," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said nevertheless bulls can expect some respite as Nifty heads into the bullish gap zone of 12,132–12,044 levels. "Interestingly 50-day exponential moving average value (12,070) also falls inside the said gap zone. Hence, we can expect strong support for Nifty inside this gap are," he added.
Therefore, Mazhar Mohammad advised traders to book profits in their short positions as and when Nifty slips into the said gap zone.
The Nifty also witnessed a series of negative divergence of RSI oscillator on daily scale, which doesn't bode well for the bulls.
"Going forward, immediate support for Nifty is placed in the zone of 12,130 then 12,050 levels. While immediate resistance for Nifty is now shifting lower to 12,250 levels. However, medium term resistance is placed at 12,400-12,430 zones," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
On the options front, maximum Put open interest was at 12,000 followed by 12,200 strike, while maximum Call open interest was at 12,500 followed by 12,300 strike.
Good amount of writing was seen in 12,300–12,500 Call options; while marginal Put unwinding was seen at 12,200 strike.
India VIX moved up by 2.94 percent to 15.86 levels.
Bank Nifty opened on negative note and respected to its major support of 30,800-30,900 levels. It consolidated just above the support band and formed a Doji candle on daily chart, indicating indecisiveness among the market participants. The index closed 0.43 percent lower at 30,947.50.
"Now, bulls have to hold above 30,800 for a pullback move in coming days while if it breaches 30,800 levels, then we may see further fall towards 30,500 then 30,300. On the flipside, immediate resistance is placed at 31,500 then 32,000 levels," Chandan Taparia said.