The Nifty50 opened on a positive note with marginal gains but failed to hold above 12,050 levels and continued to make lower lows as the day progressed on Friday.
It has now broken its crucial support of 11,950 and formed a bearish candle on the daily, as well as weekly, charts. The index has seen a breakdown from its Head and Shoulder pattern on the hourly chart, which has a bearish implication and suggests for a profit booking-led decline after the recent positive momentum in the market.
On the weekly scale, it formed a Bearish Engulfing pattern and a hold below 11,950 may lead to a profit-booking decline towards next major support placed at 11,800, then 11,700 levels. On the flipside, the immediate hurdle is placed at 12,050, then the lifetime high of 12,158 levels.
India VIX fell by 1.87 percent from 13.90 to 13.64 levels on a week-on-week basis.
On the monthly options front, maximum Put open interest was placed at 12,000 followed by 11,500 strike, while maximum Call open interest was at 12,000 followed by 12,500 strike. We have seen Call writing at 12,000 followed by 12,100 strike while Put writing was seen at 11,500 followed by 11,800 strike. Option data suggests a shift in lower trading range in between 11,700 to 12,100 levels.
Bank Nifty failed to surpass immediate hurdle of 31,900 levels and corrected sharply towards 31,250, breaking its key support of 31,500-31,400 levels. It formed a bearish candle on daily chart while formed a candle similar to a Dark Cloud Cover or an Inside Bar on the weekly scale. In the last week, it failed to cross its previous week's high and breached its crucial support of 31,500 to confirm a Double Top pattern on the hourly scale.
It failed to continue the formation of higher highs of last seven weeks and breaking below the previous week's low could even force the bulls to go for a profit-booking decline. Now, if it manages to hold below 31,500, we may see a corrective move towards its next support at 31,000-30,800 levels.
Stocks specific positive view in Kotak Mahindra Bank, Tata Steel, Infosys, JSW Steel, Colgate Palmolive while many auto, capital goods, midcap stocks are showing signs of weakness.
Traders are suggested to now hedge the position or look for a small profit booking decline in the market as per its price structure.
(The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited.)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.