For time being, Mazhar Mohammad advised traders to avoid long positions and strength in the index shall not be expected unless Nifty closes above 11,110 levels.
The Nifty50 erased all its gains amid volatile trading during the afternoon session and closed below the psychological 11,000 levels. The index broke the five day winning streak and closed in the red.
Auto, technology stocks and Reliance pulled market lower along with caution ahead of macro data and European Central Bank's policy meeting later in the day.
The index formed bearish candle which resembles a Bearish Engulfing pattern on the daily charts.
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.
A bearish candlestick pattern suggests that bears were able to regain control after the index moved in a narrow range for the past few sessions. It is usually seen as the end of an uptrend but if index breaks below its crucial support level of 10,850, selling pressure could accelerate.
India VIX fell by 3.06 percent to 14.90 levels.
The Nifty50 after opening higher at 11,058.30 extended gains and hit an intraday high of 11,081.75, but got caught in bear trap in the later half and fell to hit a day's low of 10,964.95. The index closed 52.90 points lower at 10,982.80.
"Nifty50 registered a Bearish Engulfing formation after a failed attempt to get past its near term hurdles. Hence, unless this counter closes above 11,081 levels in next one or two trading sessions then there will be a higher possibility for the index to initiate fresh leg of downswing from the highs of 11,081 levels. In that scenario initially 10,813 shall be expected," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said for quite some time, in the current consolidation phase after hitting the bottom of 10,647, index is making lower tops but higher bottoms hinting at a triangular formation which should eventually lead to a bigger breakdown.
Hence, at this juncture positional traders with high risk appetite can remain short on the market with a stop above 11,081 levels on closing basis," he added.
Mazhar Mohammad said in case if this triangle paves the way for a breakdown then bigger correction should unfold in the markets going forward which can threaten even recent low of 10,647 also. For time being he advised traders to avoid long positions and strength in the index shall not be expected unless Nifty closes above 11,110 levels.
On the options front, maximum Put open interest was seen at 10,800 followed by 11,000 strike while maximum Call open interest was seen at 11,000 followed by 11,200 and 11,500 strike.
Call and Put writing at immediate strikes suggests a limited upside as well as downside in the market. Option data suggests a trading range in between 10,800 to 11,200 levels for Nifty.
Bank Nifty has been forming higher highs - higher lows from last five trading sessions and supports are shifting higher. It witnessed profit booking from higher levels and closed flat at 27,789.20, but formed a Spinning Top kind of candle on daily scale."Now it has to continue to hold above 27,500 levels to witness further upmove towards 28,100 then 28,300-28,500 levels while medium term support shifted to 27,250 levels," Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.