Technical View: Nifty forms Long Black Day pattern, deeper correction possible

The Nifty 50 started off flat amid volatility, but bears managed to gain control by noon dragging the index down over 250 points. Weak global cues after a sudden rise in coronavirus infections in several countries including Europe dented sentiment.

The index formed a large bearish candle which resembles a Long Black Day kind of formation on the daily charts as the closing was much lower than opening levels.

Experts feel selling pressure can extend if the index decisively breaks 11,200 in the coming session.

If the index trades below 11,250 levels for more than 30 minutes in the next trading session, then intraday traders should create short positions for modest targets of 11,185 levels, Mazhar Mohammad of Chartviewindia.in advised.

India VIX moved up sharply by 10.66 percent from 20.04 to 22.18 levels, indicating more weakness with a capped upside.

The Nifty50 opened flat at 11,503.80 and traded around 11,500-mark in the morning, but fell sharply later to hit the day's low of 11,218.50 before settling at 11,250.50, down 254.50 points or 2.21 percent.

"In line with our projections Nifty50 witnessed sharp slide below 11,500 levels before signing off the session with a Long Black Day kind of formation. Interestingly, in this process it closed below recent corrective swing low of 11,278 on closing price chart by confirming some sort of bearish trend with a lower top and lower bottom kind of sequence on Line chart," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

It also marginally closed below its 50-day simple moving average thereby strengthening the bearish sentiment further. Hence, Nifty might have registered an intermediate top at recent highs of 11,794 levels registered on August 31 and in that scenario, a much deeper correction can't be ruled out going forward with initial targets placed around 10,500 levels, he feels.

Meanwhile, no strength will be expected in the Nifty until it closes above 11,535 levels. Rallies shall be used by positional traders to create fresh shorts, he said.

The trading range for the Nifty going ahead, as per the options data has also been shifted downwards to 11,000-11,500 levels, against 11,300-11,700 levels earlier.

On option front, maximum Put open interest was at 11,000 followed by 10,500 strike, while maximum Call open interest was at 11,500 followed by 11,600 strike. Call writing was seen at 11,500 then 11,400 strike while Put unwinding was seen at immediate strike with minor Put writing at 11,050 strike.

Bank Nifty continued its weakness for the third consecutive session and drifted towards the 21,250-zone to hit an intraday low of 21,274.30 after opening flat at 21,983.40.

The index has given a breakout below 22,000-mark on last Friday and the follow-up selling has taken it down by 750 points intraday.

Bank Nifty closed 664.25 points or 3.02 percent lower at 21,366.80 and formed a bearish candle on a daily scale.

"Its resistances are gradually shifting lower. Now a hold below 22,000 levels could continue the weakness towards 21,000 and below that fresh round of bearishness could be seen towards a decline of further 500-750 points while hurdles exist at 21,750-22,000," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.

Positive setup was seen in TCS and Infosys while weakness was seen in IndusInd Bank, Bharat Electronics, Tata Motors, PVR, Piramal Enterprises, RBL Bank, JSW Steel, Tata Steel, PNB, Muthoot Finance, M&M Financial, Bank of Baroda, Bharat Forge etc, he said.