The Nifty started off the day above 18,600 but failed to sustain the momentum due to selling pressure in FMCG, metals, pharma and some banking & financial stocks.
The index opened at 18,602.35 and hit a record high of 18,604.45 but, selling pressure, especially after HUL’s earnings announcement, saw the Nifty close 58.20 points lower at 18,418.80, snapping a seven-day winning streak.
It formed a bearish engulfing pattern on the daily chart. A bearish engulfing pattern consists of two candles. One candle is usually a small candle which is followed by a large black or red candlestick pattern that engulfs the short one or the previous candle.
India VIX, a measure of volatility in the market, rose 1.18 percent from 17.18 to 17.38 levels. "The spike in volatility for the last two days suggests that a volatile move could be seen in the market," said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
"Signs of reversal appear to be cropping up as the Nifty50 registered a bearish engulfing formation after witnessing a strong gap up opening," said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in.
The Nifty needs to sustain above 18,350 in the near future to prevent severe damage, he said. If the index fails to sustain above 18,350 in the next session on a closing basis then there is a high chance of registering a near-term top at today's high of 18,604 levels. "In that scenario, eventually the index can fall up to 17,850 levels," he said.
If the bulls manage to buy the current dip and push the index beyond 18,600, one should expect a higher target of 18,900 levels, he said.
For the time, however, it would be prudent for participants to avoid buying the current dip unless the market shows some signs of stability with upward strength, Mohammad said.
On the option front, maximum Put open interest was seen at 18,500 followed by 18,000 strike, while maximum Call open interest was seen at 18,500 followed by 19,000 strike.
Minor call writing was seen at 18,600 then 18,400 strike, while Put writing was seen at 18,400 than 18,300 strike.
"Open interest concentration at 18,500-mark is giving an early sign of tug of war between the bulls and the bears. Options data suggests an immediate trading range in between 18,200 and 18,700 zone," said Taparia.
The Bank Nifty also opened gap up at 39,927.30 and crossed the 40,000-mark in the initial tick, hitting a new high at 40,011.15. The index, however, failed to hold above 40,000 and witnessed profit booking to fall to 39,394.25.
The index closed 144.30 points down at 39,540.50 and formed a bearish engulfing pattern on the daily chart.
"The Bank Nifty appears to be trading inside the well-defined 39-day old ascending channel and interestingly, at today's high of 40,011, it tested the upper boundary of the said channel and registered a Bearish Engulfing formation," Mohammad said.
If it slips below 39,340 in the next session, it can attract a follow-through selloff hinting at a short-term top around 40,000.
Traders should therefore remain neutral for the day on the long side, whereas positional selling can be considered on a close below 39,390 for an initial target of 38,670.
The Bank Nifty has to hold above 39,300 to witness an upmove towards 40,000, while on the downside, major support is seen at 39,000 and 38,750, Taparia said.
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