Nifty forms large bearish candle, may breach 11,661

Positional traders should short rallies in the 11,790–11,850 zone and look for a bigger target of 11,520 with a stop above 11,900 on a closing basis.

The Nifty50 wiped out almost all last week gains and closed below 11, 800 on October 26 as a correction was seen across sectors barring FMCG, which ended flat. The rising coronavirus infections in the US and Europe along with a delay in the American stimulus package dented sentiment.

After opening flat at 11,937.40, the Nifty50 hit an intraday high of 11,942.85 but immediately slipped to touch the day's low of 11,711.70. The index closed at 11,767.80, down 162.60 points or 1.36 percent.

The index formed a large bearish candle on the daily charts as closing was much lower than opening levels. More than two shares declined for every share rising on the NSE. The Nifty midcap and smallcap indices were down 1.7 percent and 1 percent.

The selling pressure amid volatility may continue if the index breaks its recent corrective swing low of 11,661, experts said.

For the time, positional traders should short rallies into 11,790 -11,850 zone and look for a bigger target of 11,520 with a stop above 11,900 on a closing basis, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol.

"The Nifty50 appears to have resumed its downswing as it witnessed almost a 230 points fall from intraday high 11,942 to 11,711 levels which depicted a large bearish candle that eclipsed preceding 5 trading sessions of price action," Mohammad said.

The advance decline ratio also strongly favoured the bears as two stocks declined for a single stock that closed in positive terrain, hinting at a strong bearish undercurrent, he said.

It looked inevitable that the Nifty would breach the recent corrective swing low of 11,661 levels, he said. In that scenario, meaningful support is available at only around 11,500 in the form of 50-day simple moving average, he said.

India VIX moved up by 4.6 percent from 21.82 to 22.83 levels.

On the options front, maximum Put open interest was at 10,500 followed by 11,000 strike, while maximum Call open interest was at 12,500 followed by 12,000 strike. Call writing was seen at 11,900 then 12,000 strike while Put writing was seen at 11,700 then 11,400 strike.

The options data indicated that the Nifty could see a wider trading range of 11,500-12,000.

The Bank Nifty failed to hold 24,500 and drifted towards 23,850. It ended the day with a loss of 402.80 points at 24,075.50 and remained negative for the third consecutive session.

The index formed a bearish candle on the daily scale and negated its higher low formation after six consecutive sessions.

"Till the Bank Nifty remains below the 24,500-mark, weakness could be seen towards next support at 23,750 then 23,500 levels while upside key hurdle is seen at 24,750," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Positive setup was seen in Nestle India, Kotak Mahindra Bank, Power Grid, HUL and HDFC while weakness was seen in Hero MotoCorp, Bajaj Auto, Hindalco Industries, Zee Entertainment, PVR, UPL, TVS Motor, Reliance Industries, Lupin and Sun TV Network, he added.