Technical View | Nifty forms bearish candle, more volatility expected on Budget Day

The Nifty remained highly volatile but managed to close 13 points higher at 17,662 on January 31, a day ahead of the Union Budget 2023 to be presented in Parliament by Finance Minister Nirmala Sitharaman.

Buying in banks, auto, FMCG and metal stocks supported the market, however, selling in technology, pharma and oil & gas stocks capped the upside.

The benchmark index formed a bearish candle on the daily charts with long lower shadow, indicating support-based buying.

It surpassed the resistance level of 17,700 in the opening but could not hold on to it. The level of 17,700 could be the initial hurdle on the budget day followed by 17,800-18,000.

The index has strong support at 200 daily exponential moving average (DEMA) at 17,550), which it defended for third consecutive day on January 31. A break can bring more selling pressure, experts said.

"The Nifty found resistance near 17,750. As long as the index is holding the 17,500 support zone, the pullback formation is likely to continue. Above the same, the index could move up to 17,800-17,850," Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities said.

The market may witness a sharp selloff below 17,500, and on further correction, the index can slip to 17,400-17,350, he said.

On the weekly options front, the maximum Call open interest was at 18,000 strike followed by 18,200 strike, which can be crucial hurdles for the index, with minor Call writing at 17,900 strike then 18,000 strike.

On the Put side, the maximum open interest was at 17,000 strike, followed by 17,500 strike, which can act as crucial support levels, with minor Put writing at 17,600 strike then 17,500 strike.

The data indicates the Nifty’s immediate trading range can be 17,450-17,850.

Volatility spiked above 18 during the day but cooled down later. Experts expect volatility to remain high on budget day. India VIX, the fear index, fell 4.71 percent from 17.71 to 16.88.

The Bank Nifty opened positive at 40,564 and moved with positive action from the starting hour but failed to surpass its previous day's high. It negated its lower lows of the last three sessions and closed 268 points higher at 40,655.

The banking index formed a small-bodied Bullish candle on the daily scale with longer lower shadows, which indicates buying at lower zones.

"The Bank Nifty has to hold above 40,500 to make an up move towards 41,000 and 41,250 levels, whereas supports are placed at 40,250 and 40,000 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

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