The Nifty50 on January 13 recovered smartly from the day's low to close flat but failed to regain opening gains. The contraction in factory output for November and concerns over the upcoming Union Budget weighed on the sentiment.
The index ended at fresh record closing high for the fourth consecutive session but formed a bearish candle which resembles a Hanging Man kind of pattern on the daily charts.
A Hanging Man is a bearish reversal candlestick pattern that is usually formed at the end of an uptrend or at the top. In a perfect 'Hanging Man' pattern, there will be a small upper shadow or no upper shadow at all, a small body, and a long lower shadow.
Though there are no sell signals as of now, considering today's volatility, it looks prudent on the part of traders to remain cautious and take a neutral stance on the index and if someone is holding on to long positions in Nifty, then put a stop loss below 14,400, Mazhar Mohammad of Chartviewindia.in advised.
The volatility continued to rise, especially could be ahead of the big event - Union Budget 2021. India VIX was up by 1.94 percent from 22.84 to 23.29 levels, which needs to fall below the 20 mark to form the higher market base.
The Nifty50 started off the day on a strong note at 14,639.80 and hit an intraday all-time high of 14,653.35, but erased all gains in late morning deals and hit a day's low of 14,435.70. The index recouped losses in late trade to close flat at 14,564.90, up 1.40 points.
"Nifty50 registered a Hanging Man kind of formation as it smartly recoiled from the intra-day lows of 14,435 levels, after almost testing preceding session’s low of 14,432. However, this kind of indecisive formation is accompanied by a negative advance-decline ratio which remained strongly in favour of bears, hence can be a harbinger of weakness and volatility in near future," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
He feels, on the downsides, it seems, critical short-term support is placed in the bullish gap zone area of 14,383 – 14,367 levels which bulls need to defend so as to retain optimistic outlook. "In simple words, a close below 14,367 can be an initial sign of short term weakness in the prevailing strong uptrend. If the index closes below 14,367 levels, downswing may get extended up to 13,950, but below which trend reversal can be considered."
Considering strong momentum and liquidity flows, if bulls manage to push the index beyond 14,653 levels then the upswing can get extended up to 14,750 – 14,800 levels, according to Mazhar Mohammad.
The Option data indicated that the Nifty could see an immediate trading range of 14,300 to 14,800 levels in the coming sessions.
On option front, maximum Put open interest was at 14,000 followed by 13,000 strike while maximum Call open interest was at 15,000 followed by 14,000 strike. Call unwinding was seen at immediate strike with minor Call writing at 14,600 strike while Put writing was seen at 14,100 then 14,000 strike.
Bank Nifty opened gap up at 32,546.60 and made its all-time high of 32,683 by surpassing the previous high of 32,613 levels. It witnessed some profit booking that pulled down the index up to 32,148.25 levels intraday but that was bought smartly to take it back towards 32,600 zones.
It outperformed the Nifty index, rising 235.70 points to 32,574.70 and formed a Doji candle on the daily scale with its highest daily close.
"Bank Nifty has to continue to hold above 32,200 to witness an upmove towards 32,750 and 33,000 while on the downside support is seen at 32,000 and 31,750 levels," Chandan Taparia, Vice President and Analyst-Derivatives at Motilal Oswal Financial Services said.
Positive setup was seen in M&M, Adani Ports, SBI, DLF, Canara Bank, Tata Chemicals, ITC, United Breweries, Axis Bank, ICICI Bank, SRF and Infosys while weakness was seen in Shriram Transport Finance, Muthoot Finance, InterGlobe Aviation, Bajaj Finance, ICICI Prudential, Bajaj Finserv, Petronet LNG, Biocon, Titan, and Asian Paints, he added.