Spurt in VIX from previous day's low suggests that bears are not loosening their grip and bounce are being sold in the market.
Bears were on a rampage on Dalal Street on Thursday after a day of smart pull back. The Nifty50 after opening sharply lower managed to recoup some losses in afternoon, but still ended with deep cuts following steep fall in global peers amid fears over rapidly rising interest rates and likely slowdown in global economic growth hinted by IMF.
The index formed bullish candle because the closing level is higher than opening.
The brutal sell-off was seen across the board with Nifty Bank, Auto, IT, Metal, Pharma and Realty indices falling 2-4 percent while the Midcap and Smallcap indices were down more than 2 percent.
The Nifty50 opened with big gap down at 10,169.80 followed by a bit of recovery from day's low of 10,138.60 in later part of the session. The index still closed 225.40 points lower at 10,234.70, the lowest closing level since April 4, 2018.
Experts expect the most selling pressure could be possible if the index breaks Thursday's low of 10,138 in coming sessions.
"Global volatility appears to have spooked the strong pull back attempt initiated by the bulls in Wednesday's session as Nifty50 opened with a huge gap down before recovering some of the lost ground on intraday basis," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said this move not only erased the gains of last session but also dissipated the hopes of a pullback rally by registering a new corrective swing low which has reinstated bearish sentiment.
Hence, in next couple of sessions if index fails to sustain above 10,138 levels then initially it can test March 2018 lows of 9,950 to complete the corrective structure, he feels.
Contrary to this if the index manages to sustain above 10,335 levels on closing basis then it can renew the chances of a relief rally going forward, according to Mazhar.
India VIX moved up sharply by 14.68 percent to 20.53 levels. Spurt in VIX from previous day's low suggests that bears are not loosening their grip and bounce are being sold in the market. Now VIX has to cool down below 17.50-17 zones to get any sign of consolidation, experts said.
On option front, maximum Put open interest (OI) is at 10,000 followed by 10,500 strike while maximum Call OI is at 11,000 followed by 10,500 strikes. Call writing was seen at 10,500 and 10,400 strike while Put unwinding was seen from 10,300 to 10,500 strike. Option band signifies broader trading band between 10,100 to 10,400 zones.
"Nifty has been making lower top - lower bottom formation on weekly scale and now it needs to negate the same with decisive hold above 10,200 zones else weakness could continue in the market," Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.
Now till the index holds below 10,350 zones it could slip towards recent low of 10,138 then 10,000 zones while on the upside hurdle is seen near to 10,350-10,400 zones, he said.
Bank Nifty opened gap down and erased most of its previous day's gains and drifted towards 24,500 zones. It remained highly volatile throughout the session but managed to hold above 24,500 zones with supply zones at 25,000 levels. It closed 537.75 points lower at 24,783.95."Now till it holds below 25,250 zones it can slip towards 24,500 then 24,250 zones," Taparia said.