The Nifty50 not only failed to hold on to a new high hit during the day but also wiped out all the gains to close 1.5 percent lower on November 25, a day ahead of the expiry of November derivative contracts.
The index formed Long Black Day candle on the daily charts as the closing was much lower than opening levels.
Selling (or profit booking) was seen across sectors barring PSU Banks that gained 1.8 percent. Sectors corrected in the range of 1-2 percent.
Experts said the correction would continue if the index were to slip lower from the November 25 intraday low of 12,833.
Positional traders with a high-risk appetite should make use of rallies to create fresh short positions as the downward trajectory would continue unless the Nifty closes above 13,150, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
The Nifty50 had a strong gap up opening at 13,130 and hit an intraday record high of 13,145.85 but the selling towards pulled the market to the day's low of 12,833.65 in the afternoon. The index closed at 12,858.40, down 196.80 points.
"Finally the bears appear to have managed to tame the bulls with their counter attack as Nifty50 registered a Long Black Day kind of formation as the said index lost around 300 points from the intraday high of 13,145 levels. This reversal formation from critical resistance point on long-term charts is hinting at a multi-week top around 13,145 levels," Mohammad said.
Any rally will remain vulnerable to a selloff, with initial target of 12,730, he said.
However, "in next trading sessions if the bulls manage to defend the low of 12,833 levels, then the trend may remain sideways for a couple of trading sessions. In that scenario, the bulls may attempt a pull-back rally, which can enter into the zone of 12,952–989 levels, which shall remain vulnerable for a sell off," he said.
If the Nifty closes below 12,833 in the next session, then the index would head towards 12,730 but a bigger target of 12,350 can't be ruled out, Mohammad said.
The volatility also increased, with India VIX rising by 9.82 percent from 21.06 to 23.12 levels. "Volatility has increased in past few sessions, which suggests ongoing momentum could take a pause," Chandan Taparia of Motilal Oswal said.
On the options front, maximum Put open interest was at 12,800 followed by 12,500 strike while maximum Call open interest was at 13,500 followed by 13,000 strike. Call writing was seen at 13,000 then 12,900 strike while Put unwinding was seen at immediate strikes.
The data indicates that the Nifty can see a wider trading range of 12,750-13,050 in the coming days.
The Bank Nifty opened gap up at 30,021.90 and extend it move towards 30,200 but failed to hold its gains at higher levels and started drifting lower to hit the day's low of 29,132.30. It corrected nearly 1,000 points from the day's high, as selling was seen across banking counters.
The index closed 540.90 points, or 1.82 percent, lower at 29,196.40 and formed a Bearish Engulfing candle on the daily scale.
"Now the Bank Nifty has to hold above 29,000 levels to witness a bounce towards 29,500 then 29,800 levels, while a hold below the same could see selling pressure towards 28,600-28,500 levels," Taparia said.
Positive setup was seen in ONGC, Gail, Adani Ports and SBI Life, while weakness was seen in Axis Bank, HDFC Bank, Eicher Motors, Maruti Suzuki, Dr Reddy's Labs, Aurobindo pharma, Bajaj Finance, Hero Motocorp and Kotak Mahindra Bank, he added.