Technical View | Investors book profits after Nifty hits 20,100; 19,850 may decide further correction

Daily and hourly momentum indicators are providing divergent signals.

The Nifty50 was about to see yet another strong session as it surpassed 20,100 levels in the opening, but the market participants seem to have preferred a profit-taking strategy after the index recorded nearly 4.5 percent gains since August lows. If the index shows some more weakness in coming sessions and breaks the low of Monday's trade, then there could be a further correction. 19,500 is expected to be a crucial support area for the Nifty50, while the resistance will remain at today's high of 20,110, experts said.

The Nifty50 had a positive opening at 20,110, which was also its day's high and turned volatile for the rest of the day. The index snapped a seven-day winning streak and closed with 3 points loss at 19,993, forming a bearish candlestick pattern with a minor lower shadow on the daily charts, but still continued making higher highs formation for the eighth consecutive session.

"Though this market action indicates a minor reversal in nature, we need confirmation by the way of more weakness in the next session to call this as a top reversal," Nagaraj Shetti, technical research analyst at HDFC Securities said.

He feels the sharp sell-off in broad market indices is indicating more weakness ahead for the benchmark Nifty in the coming sessions.

"A decline below 19,850 levels could confirm a short-term top reversal pattern for the market. Any upside rally from here could find strong resistance around 20,100 levels," Shetti said.

Option data also indicated that 20,100-20,500 is expected to be a crucial resistance area for the Nifty, with immediate support at 19,900, and then 19,600.

As per Options data, the maximum weekly Call open interest was visible at 20,100 strike, followed by 20,000 & 20,500 strikes, with meaningful Call writing at 20,100 strike, then 20,500 strike, while the maximum Put open interest was seen at 19,900 strike, followed by 19,600 strike, with Put writing at 19,600 strike, then 19,000 strike.

The Bank Nifty also saw profit-taking after climbing near 45,900, and closed with 59 points loss at 45,511. The index has formed a bearish candlestick pattern with a minor lower shadow on the daily scale.

Jatin Gedia, technical research analyst at Sharekhan by BNP Paribas believes that there could be a consolidation in the range of 45,800 – 45,000 from a short-term perspective.

Daily and hourly momentum indicators are providing divergent signals which could lead to a consolidation in the near term, he feels.

The broader markets have seen significant correction on Tuesday after a robust rally, with the Nifty Midcap 100 and Smallcap 100 indices falling 3 percent and 4 percent respectively on weak breadth. About nine shares declined for every rising share on the NSE.

India VIX, which measures the expected volatility for the next 30 days in the Nifty, touched a 12 mark intraday, and settled at 11.69 levels, increasing by 3 percent from 10.71 levels, which seems to be not a worrisome signal yet for the market.