Traders should remain neutral on the index while shifting focus to stock-specific opportunities, says Mazhar Mohammad.
The Nifty, dented by banks, managed to recoup most of intraday losses in the late trade and closed off day's low on January 15. Asset quality concerns may again be weighing on the market, especially after IndusInd Bank reported higher-than-expected NPA numbers in its third-quarter results.
The index closed below 12,350 and formed a Dragonfly Doji pattern on daily charts, as it smartly recoiled from the intraday lows of 12,278 after testing its 5-day EMA (12,294).
A Dragonfly Doji pattern signals indecision among traders but also points to the fact that the bulls managed to bring the index close to the opening level. The index has to clear the immediate hurdle of 12,374 (the record high level touched on January 14) for the bullish sentiment to continue.
Experts say the index may see further selling pressure if it breaks 12,278, the intraday low, and advised shifting focus to stock-specific opportunities.
After opening lower at 12,349.40, the Nifty extended losses and hit an intraday low of 12,278.75 in the afternoon. The index managed to trim some losses in late trade and closed 19 points lower at 12,343.30.
"This kind of formation around the higher end of the rallies has the ability to reverse the prevailing trend, though a perfect Dragonfly Doji needs the same opening, high and closing prices. Hence, in the next trading session if the Nifty trades below 12,278 level for the larger part of the intraday, then it can set the tone for a short-term trend reversal," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
In such a scenario, the Nifty will eventually head into the bullish gap zone of 12,132–12,044 registered on January 9, he said.
Contrary to this, strength will reemerge on a close above 12,374, which can help bulls in expanding the rally towards 12,490, Mohammad said.
He advised traders to remain neutral on the index while shifting focus to stock-specific opportunities.
The volatility index India VIX marginally moved up by 1.51 percent to 14.12 levels.
"We have some rangebound move in VIX which suggests that the bulls are holding the grip while we are also expecting volatility to spike ahead of the Union Budget 2020," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
The options data indicates that the Nifty could trade in 12,000-12,500 range in the coming days.
Maximum put open interest was seen at 12,000 followed by 12,200 strike, while maximum Call open interest was at 12,500 followed by 12,400 strike. Marginal Call writing was seen at 12,400 strike, while some Put unwinding was seen at immediate strike.
The Bank Nifty continued to underperform for the third consecutive session and drifted towards 31,700. It recovered marginally from lower levels but failed to hold above 32,000, closing 0.77 percent lower at 31,824.90.
The index formed a bearish candle on the daily scale as selling pressure was seen at higher levels. But at the same time, it is respecting its bullish gap of 31,451-31,667."Now it has to continue to hold above 31,750 to witness an upmove towards 32,350 then 32,500-32,600 zones, while on the downside support is now placed at 31,500 level," Taparia 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.