Nifty breaks 200 DMA & Budget day's low, but experts hopeful for reversal if 17,300 holds

The Nifty was trading deep in the red on February 27 afternoon as the market remained under pressure for the seventh consecutive session, weighed down by auto, technology, FMCG, metal, pharma and oil & gas stocks.

The index broke the budget day's low of 17,353, which coincides with the 200-day moving average (DMA), suggesting more selling pressure.

Experts, however, said that the index manages to hold 17,300, a rebound towards 17,500-17,600 is possible.

If the reversal comes, there could be a double bottom pattern formation (bullish reversal pattern) and the uptrend may get extended, experts said.

At 2.53 pm, the index was trading 112 points, or 0.64 percent, down at 17,353.60, taking the loss to around 750 points from February's high.

"The Nifty has been trading in the Budget Day range since almost a month and the breakdown of the range coupled with consecutive closes below the 200-EMA (exponential moving average - 17,590) definitely spells more downside," Viraj Vyas, Technical Analyst at Ashika Stock Broking said.

He sees the next support for the index at 17,100-17,200 and further violation can lead to the index testing the 16,800-critical pivot.

The momentum indicator relative strength index (RSI 14) is at around oversold levels (32), raising the possibility of a bounce back. The correction is not supported by big volumes, in fact, it is below the average levels.

The Bank Nifty, which has the maximum weightage in Nifty50, was the outperformer on February 27 with 350 points gains.

"If the index does manage to hold above the 17,300 mark, there is a chance that Double Bottom (bullish reversal pattern) might be forming on both benchmark indices. The option chain continues to be oversold with the 14-day RSI approaching the oversold zone, a short-term bounce might be in the offing," Viraj Vyas said.

Santosh Meena, Head of Research at Swastika Investmart, also said one should wait for the close because if this breakdown is false, then short covering move is expected.

"There is a sharp divergence between the Nifty and Bank Nifty today, with the Bank Nifty showing decent strength, while the Nifty is under pressure. The Bank Nifty is a leading indicator in general, and the market is oversold based on FIIs' short exposure and PCR (0.72), so we should wait for the day's close. However, if Nifty does not recover, then 17,130 is the next target level," Meena said.

Generally Put/Call ratio at around 0.7 or moving down towards 0.5 means the traders are buying more Calls than Puts, indicating the possibility of the emergence of a bullish trend.

On the weekly Options front, the maximum Call open interest was at 17,600 strike, followed by 17,500 and 17,400 strikes, which are expected to near term resistance points for the Nifty, followed by Call writing at 17,400 strike, then 17,400 and 17,600 strikes.

On the Put side, the maximum open interest was at 17,000 strike, which is expected to be a crucial support area followed by 17,400-17,300 strikes, with writing at 17,300 strike, 17,000 and 17,400 strikes.