The Nifty50 extended losses for the second consecutive session and closed well below 11,700 levels on October 29, the expiry day for October F&O contracts. Volatility in global peers, rising coronavirus cases and the forthcoming US elections also kept sentiment jittery.
The index formed small bullish candle (as closing was above opening levels) which resembles an Inverted Hammer pattern on the daily charts.
An Inverted Hammer is a reversal pattern in which the index closes near its opening levels. It has a long upper shadow, small or no lower shadow, and a small body.
The formation of an Inverted Hammer candle indicates a pause in bounce back if follow up supply happens in next trading sessions. However, it still requires confirmation.
Experts feel 11,600 is likely to be a crucial level for further consolidation in the market.
Mazhar Mohammad of Chartviewindia.in feels, for the time being, the best trade for intraday traders can be to short by making use of rally in the zone of 11,720 – 11,745 levels with a stop above 11,775 and look for a modest target of 11,620.
The Nifty50 opened lower at 11,633.30 and remained weak for the majority of the session to hit a day's low of 11,606.45. The index attempted positive trade in noon up to 11,744.15 but could not sustain for long. It finally settled at 11,670.80, down 58.80 points.
"Weak near-term trends accompanied with strong negative global cues appear to have created havoc in the bourses as Nifty50 opened with a huge gap down but managed to close inside the trading range of 11,661 – 12,025 levels before signing off the session with an Inverted Hammer formation with long upper shadow and a small candle body," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
Hence, he feels in the next trading session, it is critical for Nifty to sustain above 11,606 levels to continue consolidation in a rangebound move. However, even if Nifty slips below 11,606 levels then nearby support is available around 11,540 levels in the form of a 50-day simple moving average, he said.
Going forward, it remains critical for Nifty to sustain above the said average as a breach of this on the closing basis can trigger a sharp slide with eventual targets present between 11,000 – 10,900 levels, he added. Meanwhile on the upsides rallies can be curtailed close to 11,750 levels, according to him.
The volatility moved upwards from last four consecutive weeks ahead of US elections. India VIX rose by 3.19 percent from 23.28 to 24.02 levels.
Since it is the beginning of a new series, options data is scattered at various strikes. Maximum Put open interest was seen at 11,000 followed by 11,500 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. Marginal Call writing was seen in 11,700 and 12,000 strike while Put writing was seen at 11,600 then 11,000 strike.
The abovementioned option data indicated that the Nifty could be in a wider trading range of 11,200 to 12,000 levels.
Bank Nifty opened in the negative territory at 24,063.50 and witnessed a sharp zig-zag movement throughout the day. It was a tug of war between the bulls and bears to hold the banking index above or below 24,000 mark amid monthly expiry day.
The index closed 140.50 points lower at 24,092 and formed a High Wave Doji candle with long upper and lower shadows on the daily scale which indicates a state of confusion in the rate-sensitive index.
"Bank Nifty has to cross 24,250 to witness an up move towards 24,750 while immediate key support is seen at 23,900 then 23,750 and 23,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.
Positive setup was seen in Pidilite Industries, Berger Paints, Muthoot Finance, Ramco Cements, Asian Paints, UltraTech Cement, SRF, Tata Chemicals, Kotak Mahindra Bank and Ambuja Cements while weakness was seen in Piramal Enterprises, ONGC, PVR, Canara Bank, Hero MotoCorp, Lupin and Mcdowell, he added.