Positional traders should make use of bounce, if any, to create fresh short positions with a stop above 11,370 and look for a bigger target of 10,882.
After witnessing consolidation in the last few sessions, the Nifty50 fell more than 100 points on August 14 on weak European cues amid rising virus infections in the UK and persisting doubts over a second US fiscal stimulus. High inflation dampening hopes of rate cut in India and US-China trade tensions also weighed on sentiment.
All sectoral indices, barring metal and pharma, were caught in the bear trap. The index fell below 11,200 and formed a large bearish candle on the daily charts. On the weekly charts, there was Spinning Top formation as the index declined third of a percent for the week.
Spinning Top is regarded as a neutral pattern that suggests indecisiveness in the market. It can be formed in an uptrend as well as in a downtrend.
For the time, traders should make use of bounce, if any, to create fresh short positions with a stop above 11,370 and look for a bigger target of 10,882, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.
A rise in volatility after a decline in eight trading sessions also paused the momentum but as the VIX is still comfortably placed, the downside is expected to be limited and the buying could emerge again, experts says. The VIX rose by 5.36 percent to 21.67 levels.
After starting the session at 11,353.30, the Nifty hit the day's high of 11,366.25 but wiped out gains in the afternoon to touch the day’s low of 11,111.45. The index fell 122.10 points or 1.08 percent to 11,178.40.
"The Nifty50 appears to have triggered a much awaited correction as it registered a long bearish candle on daily charts whereas a Spinning Top was witnessed on weekly charts, hinting the indecisive nature of traders at higher levels," Mohammad said.
The close below 11,200 washed out the gains of six sessions, suggesting that the Nifty might be in a distribution phase before this breakdown.
If the index stays below 11,366, it can head towards 10,882 levels to complete one corrective structure of lower degree in terms of wave theory, he added. Meanwhile, upsides shall remain capped at around 11,370.
With the correction, options data indicated there was a downward shift in upper band of trading range, which could be 11,000 to 11,400.
Maximum Put open interest was seen at 11,000 followed by 10,000 strike, while maximum Call open interest was at 11,500 followed by 12,000 strike. Minor Call writing was seen at 11,200 and 11,300 strike while Put writing was seen at 11,100 then 10,800 strike.
The Bank Nifty opened positive but witnessed sustained selling pressure throughout the session. The index lost 516.95 points, or 2.33 percent, to close at 21,679.40 and formed a Bearish Belt Hold candle as it made an opening high at 22,334 and saw a sharp decline towards 21,500 zone.
"It has come back to 50 DEMA and only a decisive move beyond the trading band could give any clear indication for fresh momentum. Now it has to hold above 22,000 levels, to witness an upmove towards 22,500, while on the downside, immediate support is seen at 21,500 then 21,250," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.Positive setup was seen in Lupin, Glenmark, Siemens, Cummins India, Cadila Healthcare, Coal India, Cipla and Tata Steel, while weak structure was seen in Bank of Baroda, RBL Bank, PNB, ONGC, HPCL and Federal Bank, he added.