Technical View | Nifty forms long bearish candle but takes support at lower end of 17,800-18,200 range

The market looked too much cautious ahead of Union Budget and FOMC meeting scheduled for next week, as the Nifty50 fell more than 1 percent on January 25, the monthly F&O expiry day. All sectoral indices closed in the red.

Migration from T+2 to T+1 settlement with effect from Friday (January 27) also led to some offloading, experts feel. The index has formed long bearish candle on the daily charts with lower high lower low formation with above average volumes, indicating increasing nervousness among market participants.

The the Nifty50 index started off lower at below 18,100 and remained under pressure throughout the session to hit the day's low of 17,846. Finally it closed way below the psychological 18,000 mark, at 17,892, down 226 points.

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It has broken the long upward sloping support trendline adjoining lows of June 20, 2022 and January 12, 2023, after double top formation, and closed below 50 and 100 DEMA (days exponential moving average - 18,091 and 17,908). Also, there was a breakout of small upward sloping support trendline adjoining lows of January 13 and January 20, 2023, but the index has still been moving in a range of 17,800-18,200 and has taken a support at 17,800 mark on the monthly F&O expiry day.

Hence, sentiment may remain negative below 18,000 and the decisive break below 17,800 can drag the index to 17,700-17,600, with resistance at 18,000-18,200 levels, experts said.

"After a double top formation the market witnessed a sharp correction. On daily charts the Nifty has formed a long bearish candle and closed below the 18,000 mark which is broadly negative," said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities.

He feels as long as the index is trading below 18,000, the weak sentiment is likely to continue and below the same the index could retest the level of 17,800. Any further downside could drag the index till 17,700.

On the flip side, above 18,000, the index could move up to 18,050-18,100 levels, the market expert said.

According to Option data, the expected trading range for the Nifty, after Wednesday's fall, has been shifted lower a bit to 17,700-18,200 from 17,800-18,200 earlier.

On Option front, we have seen maximum Call open interest at 17,900 strike followed by 18,000 strike, with Call writing at 17,900 strike then 18,000 strike, whereas the maximum Put open interest was seen at 17,900 strike followed by 17,800 strike, with maximum Put writing at 18,100 strike then 18,000 strike and minor Put writing at 17,900 strike then 17,800 strike.

India VIX was up by 7.30 percent from 13.66 to 14.66 levels, giving discomfort for bulls.

Bank Nifty was the biggest loser among sectors and underperformed broader markets, witnessing selling pressure throughout the session. The banking index fell nearly 1,100 points to 41,648 and formed a long bearish candle on the daily charts.

"On the daily chart, an upward consolidation was followed by a sharp correction, suggesting a rise in bearish bets in the space. Furthermore, the index has dropped below the 50-day exponential moving average, confirming the downward trend," Kunal Shah, Senior Technical Analyst at LKP Securities said.

On the lower end, immediate support is visible at 41,500-40,800, whereas on the higher end, resistance is visible at 42,000, the expert said.

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