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Technical View: Nifty forms Long Black Day pattern, may fall to 11K if index breaks 11,111

Traders should remain neutral and wait for some consolidation before initiating long positions, says Mazhar Mohammad.

February 28, 2020 / 07:37 PM IST

It was a bloodbath on Dalal Street as the Nifty tanked from the word go and extended the selling pressure in late trade to close lower for the sixth consecutive session on February 28.

The decline was followed by a correction across global mats as the coronavirus continued to spread to the US and Europe, which raised concerns over global economic growth. The virus that originated in China in late 2019 has now spread to more than 50 countries.

The Nifty registered its biggest single-day fall in four years and formed a large bullish candle, which resembles a Long Black Day pattern on daily as well as weekly charts, as the closing was far lower than the opening level. The index ended the week 7.3 percent lower.

With the correction extending into six trading sessions, no technical level looks sacrosanct.

Experts favour waiting for some consolidation before initiating long positions and say if the index breaks the next crucial support of 11,111, then it could slip past the psychologically important 11,000-mark.

The Nifty opened sharply lower at 11,382 and traded around the same level. It extended selling pressure in the late trade and hit the day's low of 11,175.05, before closing 431.50 points, or 3.71 percent, down at 11,201.80, the lowest since October 7, 2019.

"The Nifty is approaching certain critical long-term averages on longer time-frame charts from where the Nifty took support and staged a rally after major corrections in the past. Hence, in the near term, crucial support to watch out will be 11,111, which should not be violated at least on a weekly closing basis. The next logical support of the entire rally from the lows of 10,670–12,430 is placed around 11,022 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory,, told Moneycontrol.

If the downswing continues even in the next week, then ideally the Nifty should hold these levels to expect some sort of decent pullback rally, he said. In case of a pullback, the initial target could be towards 11,530, Mohammad said.

He said considering the deep cuts and uncertainty surrounding the global markets, it would be prudent to remain neutral and wait for some consolidation before initiating long positions.

As per volatility, a broader trading range for the Nifty could be seen between 10,800 and 11,600.

Since it is the beginning of a new series, the options data is scattered at the various strike price. Maximum Call open interest was seen at 12,000 then 11,800 strike while maximum Put open interest was at 11,800 then 11,700 strike.

Meaningful Call writing was seen at 11,500 then 11,300 strike while Put writing was seen at 11,300 then 10,800 strike.

India VIX moved up sharply by 30.83 percent to 23.23 levels.
India VIX has given a breakout from its horizontal line on the daily scale, which suggests further volatility in the market, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

The Bank Nifty opened gap down and saw sustained selling pressure to close near 29,100 zone. It corrected 1,039.80 points to 29,147.20 and failed to hold its budget day's low to close at more than four-month low.

It has formed lower lows, lower highs from the past five sessions and formed a big bearish candle on daily and weekly scales, as the bears have tightened the grip of higher zones and witnessed the biggest single-day fall in four years.

"Resistance is gradually shifting lower and now till it holds below 29,600 levels, weakness could be seen towards 28,750 then 28,500, while on the upside hurdle is seen at 29,750 then 30,000 levels," Taparia said.

Sunil Shankar Matkar
first published: Feb 28, 2020 05:35 pm