The Nifty50 extended losses amid weak global cues and closed more than 200 points down on January 22, forming a bearish candle on the daily charts as closing was lower than opening levels. Banking & financials and metals pulled the market down.
After opening flat at 14,583.40, the Nifty hit the day's high of 14,619.90. After an initial hour of volatility, the index corrected to touch the day's low of 14,357.75 before signing off the session at 14,371.90, down 218.50 points or 1.50 percent.
The index shed fourth of a percent for the week and formed a small bearish candle, which resembled a Shooting Star pattern on the weekly charts.
A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels. This pattern is usually formed in an uptrend and is treated as a reversal pattern but it will require confirmation.
As the trend seems to be favouring the bears, traders should short below 14,350 levels and look for a target of 14,220 by placing a stop above the intraday high, said Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol..
If the Nifty slips below 14,350 in next the one or two sessions, it can slide all the way to 13,950 levels, Mohammad said.
However, at around "14,222 levels, the bulls may try to make a come back as the current corrective structure appears to be unfolding in the form of an Expanded Flat in Elliot Wabe parlance, which has the potentiality to culminate below 14,222 levels paving the way for a pullback rally", he said.
Therefore, short-side traders need to remain cautious as the Nifty approaches the said levels, he said. Strength should not be expected unless the Nifty registers a close above 14,650 levels.
The index may continue to remain highly volatile ahead of the monthly expiry next week and Union Budget 2021, which is to be presented on February 1, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said. India VIX moved up by 1.09 percent from 22.18 to 22.42 levels.
On the options front, maximum Put open interest was at 14,000 followed by 13,500 strike, while maximum Call open interest was at 15,000 followed by 14,500 strike. Call writing was seen at 14,500 then 14,700 strike, while Put writing was seen at 13,800 and 14,000 strike.
The options data suggests that the Nifty could see an immediate trading range of 14,200 to 14,600.
The Bank Nifty opened gap down at 32,088.00 and witnessed sustained selling pressure throughout the day with underperformance in all the banking counters. The rate-sensitive index plunged by 1,019.60 points to close at 31,167.30 after touching an intraday low of 31,119.90 levels.
The index formed a bearish candle on daily and weekly charts. "Now till it remains below 31,750, bounce could be sold for the downside move towards 30,500 while on the upside hurdles are seen at 32,000 and 32,200," Taparia said.
Positive setup was seen in Bajaj Auto, Apollo Tyres, Hero MotoCorp, Bharat Forge, HUL, Eicher Motors and TCS, while weakness was seen in SAIL, RBL Bank, SRF, JSW Steel, Piramal Enterprises, L&T Finance Holdings, Axis Bank, M&M Financial, Hindalco, IndusInd Bank, SBI, PNB, Coal India, ONGC and Kotak Mahindra Bank, he added.