Nifty50 started off the week with a negative bias and broke 11,600 level intraday on April 8, forming bearish candle which resembles a 'Bearish Engulfing' kind of formation on daily candlestick charts.
Brent crude futures, the international benchmark for oil prices, climbed above crucial $70 a barrel which dented market sentiment. All sectoral indices closed in the red, barring IT.
The follow-up buying was missing on Monday after pull back attempt was made by the index on April 5, which indicated that if it decisively breaks crucial support of 11,549 in coming sessions, 11,300 could be the next target on downside, experts said.
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.
The Nifty50 opened higher at 11,704.35, but lost momentum after initial 20 minutes of trade. The index extended losses as the day progressed and touched an intraday low of 11,549.10. It recovered some losses in late trade, which helped it close above 11,600 levels. It was down 61.50 points at 11,604.50.
"Bears appear to be flexing their muscle on the market as Nifty50 registered a 'Bearish Engulfing' formation which appears to have resulted in lower top also at Monday's high of 11,710 levels, suggesting the end of pullback attempt," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said in case Nifty breaches 11,549 on closing basis, selling pressure shall get accentuated further with targets placed around 11,300 levels.
If this bearish structure is unfolding then ideally Nifty shall not get past 11,710 kind of levels going forward, he added.
Hence, as long as Nifty sustains below 11,710 levels market shall remain vulnerable for a sell off, according to him. "It looks prudent on the part of traders to remain short on this market with a stop above 11,710 levels on closing basis and look for much lower targets."
India VIX moved up sharply by 9.32 percent to 20.10 levels.
Sudden spike in VIX indicates a pause in upside momentum, experts said, adding Options band signifies an immediate trading range between 11,500 and 11,800.
On the Option front, maximum Put open interest (OI) is at 11,000 followed by 11,500 strike while maximum Call OI is at 12,000 followed by 11,800 strike.
Call writing is at 12,000 followed by 11,700 strike while Put unwinding is at immediate strike price.
"Nifty index formed a bearish candle on daily scale but witnessed some bounce its crucial support level of 11,550 zones. Now till it holds above 11,550 zones it can witness a bounce towards 11,666 then 11,700 zones while a hold below the same could drag it towards 11,500 and then 11,450 zones," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
Bank Nifty opened positive but faced hurdle near 30,250 zone and drifted sharply towards 29,700 levels. The index closed 239.35 points lower at 29,845.30 and formed a 'Bearish Engulfing' candle on daily scale.
"Now till it holds below 30,000 zone it can slip towards 29,500 then 29,250 zones, while on the upside, hurdle is seen at 30,250 then 30,500 levels," Chandan Taparia said.
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