Technical View | Nifty forms large bearish candle, break of 21,000 to deepen correction

Nifty may extend fall if breaks 21,000 mark

The benchmark Nifty scaled a new high on December 20 morning only to see its steepest single-day fall in the past nine months, with the index ending deep in the red after a volatile day of trade.

The index opened above 21,500, tracking positive trends in other Asian markets, and hit a new high of 21,593 in the first hour. But it squandered the gains on profit-booking later in the day, falling 303 points, or 1.41 percent, the sharpest fall since March 13, to end at 21,150.

Profit booking was expected given the elevated valuations, experts said.

The index may try to take a support at 21,000, followed by crucial support at 20,800, which coincides with the 20-day exponential moving average (EMA). A decisive break of the support can deepen the correction. In case of a rebound, 20,300-20,400 would be the immediate resistance, experts said.

The momentum indicator relative strength index (RSI) at 68 levels gave negative crossover and retreated sharply from overbought zone that generally starts above 80.

On the daily timeframe, the index formed a large bearish candlestick that engulfed the past three trading sessions, indicating profit-booking at higher levels.

Omkar Patil, technical & derivatives analyst - institutional equity at Ashika Group, said the overall trend remains positive, with immediate support placed around the 21,000-mark.

The current scenario suggests the index may be taking a breather, he said.

On the options front, the maximum Call open interest was at 21,500 strike followed by 21,600 strike, with meaningful Call writing at 21,300 strike, then 21,200 strike, while 21,000 strike owned the maximum Put open interest, followed by 20,500 strike, with Put writing at 21,000 strike, then 20,700 strike.

The data indicates that 21,000 may act as the near-term support for the Nifty 50, with resistance at 21,200-21,300.

The put call ratio (PCR) dropped significantly to 0.68, from 1.13. A below 1 PCR means the volume on the call side is higher than the put side, indicating a rise in the bullish sentiment.

Bank Nifty

Bank Nifty, too, took a tumble but the fall was not as severe as that of the Nifty. The banking index ended 426 points down at 47,445 and formed a long bearish candlestick pattern on the daily timeframe.

"Now till it holds below the 47,750 zone, some weakness can be seen towards 47,200 then 46,850 levels, while on the upside, the hurdle is expected at 47,750 then 48,000 levels," Chandan Taparia, Senior Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

The India VIX jumped to 14.45, the highest level since March 28, up by 4.2 percent. If the VIX, which measures the volatility expected over the next 30 days, rises further, there could be more consolidation in the market, experts said.

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