Technical View: Nifty posts biggest single day fall in 2017; makes strong bearish candle

The Nifty50 which started with a gap on the lower side witnessed sustained selling pressure from bears which took the index below its crucial support level of 10,000 and formed a solid bearish candle on the charts on Friday.

The Nifty50 has seen its biggest single-day fall in the last ten months and also gave the lowest daily close in last ten trading sessions.

A strong bearish candle after a Hammer-like formation suggests that markets are likely to remain under pressure for some more time. Short-term weakness is likely to continue towards 9,220 and 9,880 levels, suggest experts.

The Nifty50 index opened at 10,094 and rose marginally to an intraday high of 10,095 but then bears took control of D-Street and pushed the index below 10,000. It closed 157 points lower at 9,964.

On the weekly scale, it formed a Bearish Engulfing pattern as it snapped the entire gains of last week and closed below previous week’s low levels. Investors are advised not to create long positions on dips while for short positions maintain a strict stop loss above 10,179.

“For quite some time we have been highlighting that the rally from the lows of 9685 is a counter-trend rally which should perish from around 10137 levels there by paving the way for bigger correction,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Friday’s Bearish Engulfing formation on the weekly charts not only vindicated our stance but also confirming the end of this pullback rally at the recent high of 10,179 levels. In Elliot Wave terminology we are considering the current leg of fall to be wave c of a Flat formation which is a corrective structure in progress from the highs of 10,137 registered on 2nd of August 2017,” he said.

In order to complete this corrective pattern, Nifty50 should go below 9,685 levels where a good buying opportunity should arise. Mohammad advises traders to make use of pull back rallies to go short for an ideal target of 9,685 with a stop above 10179 levels.

India VIX moved up sharply by 11.52 percent at 12.97 and a jump in VIX beyond 12.50 has taken the market in to bear grip for short-term point of view.

On the options front, maximum Put OI has shifted to strike prices 9,900 followed 10,000 while maximum Call OI was seen at strike prices 10,200 and 10,100.

Fresh Call writing at all the strikes was seen from strike prices 10,000 to 10,200 which are pushing it to lower zones. “Put unwinding was seen in all the strikes from 10200 to 9900 strikes which are giving the scope for further declines,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The Nifty has started to form lower top – lower bottom and formed a Bearish candle similar to a Bearish Belt Hold candle on the daily chart. Now short-term weakness could continue towards 9920 and 9880 zones till it holds below psychological 10000 marks, while on the upside resistances are shifting lower to 10020 and 10080 zones,” he said.