The Nifty rebounded sharply in the early trade but erased gains to end lower on January 28, the first day of the February series, as investors get cautious ahead of the Budget.
The index formed a bearish candle which resembled a Shooting Star pattern on the daily chart. On the weekly scale, it formed a bearish candle, as the index corrected nearly 3 percent.
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 requires confirmation.
India VIX, which measures the expected volatility in the market, was down by 1.73 percent from 21.06 to 20.69 levels but still above the comfort level of 20.
"Volatility cooled down but is still hovering at higher zones from the last three sessions signalling volatile swings in the market," said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.
After opening sharply higher at 17,208.30, the Nifty rallied to the day’s high of 17,373.50 but wiped out the gains in the afternoon sinking to 17,077. It closed with an 8.2 points loss at 17,102.
This seems to be the lowest close of the current leg of downswing despite the last three sessions of pull-back attempts from the recent lows of 16,836, said Mazhar Mohammad, Chief Strategist –Technical Research & Trading Advisor, Chartviewindia.in.
If the index fails to sustain above 17,077 in the next session, it may test 16,836. A further slip will bring it to the 200-day moving average placed around 16,604, Mohammad said.
If the bulls manage to defend 17,100 and push the index above 17,373 then the consolidation zone can remain between 17,600 and 16,900, he said.
As the market heads into the major economic events— the Economic Survey on January 31 and the Budget the next day— the trend will be dictated by those in the very short term, he said. It would be prudent to remain neutral on the index for the time being, he said.
On the options front, since it is the beginning of a new series, open interest inventory is scattered at various strikes. Maximum Call open interest was seen at 18,000 then 17,500 strike, while maximum Put open interest was seen at 16,500 then 16,000 strike.
The options data indicates that the Nifty50 could see a wider trading range of 16,500 to 17,500 levels to higher volatility.
The Bank Nifty opened sharply higher at 38,246.60 and climbed to 38,421.70 but erased gains in the afternoon to test the day's low of 37,581.50. It closed 292.70 points lower at 37,689.40 and formed a bearish candle on the daily chart.
On the weekly scale, the index, which gained 0.3 percent during the week, formed a Doji candle, indicating indecisiveness among the bulls and the bears.
"Now the Bank Nifty has to hold above 37,500 levels for an up move towards 38,000 and 38,250 whereas support can be seen at 37,250 and 37,000 levels," said Taparia.
On the stock front, he said a bullish setup was seen in LIC Housing Finance, Can Fin Homes, Bata India, IRCTC, Tata Chemicals, NTPC, Indian Hotels, United Breweries, Coromandel International, Container Corporation, NALCO, ONGC, UPL, Sun Pharma and Cipla.
Weakness was seen in TVS Motor, BHEL, Tech Mahindra, Voltas, Hero MotoCorp, Bajaj Finserv, HDFC Bank, Dr Reddy's Labs, InterGlobe Aviation and Havells.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.