Technical View: Nifty forms bearish candle for second straight day, experts say index can break 14,000

 

Volatility has spiked above 24, pausing the positive momentum. and needs to be below 20 for the index to climb again, Chandan Taparia of Motilal Oswal has said.

The Nifty50 fell sharply for the second day running due to selling pressure and lost more than 150 points on January 18. The correction was seen across sectors, with the Nifty metal falling the most with a 4 percent loss. Bank, financial services, auto, IT, realty and pharma indices were down 1-3 percent.

After opening higher at 14,453.30, the Nifty hit the day's high of 14,459.15 in early trade only to slip into the red. The index tried to recoup losses in the afternoon but fell sharply in the last hour and closed 152.40 points, or 1.06 percent, lower at 14,281.30.

The index formed a bearish candle on the daily charts as the closing was lower than opening levels. Experts advised caution as the Union Budget 2021 nears and said the volatility is likely to continue in the coming days.

"Bears appear to be slowly tightening their grip on the markets as intraday recovery towards 14,400 levels met with huge selling pressure in post luncheon session, which paved the way for new intraday low of 14,222 levels. Hence, the trajectory of this market might have shifted from buy-on-dips to sell-on-rallies," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol

Therefore, stability should not be expected unless the index closes above 14,459 levels, he said.

As the index is down more than 300 points in the last two sessions, some sideways consolidation should be expected the next day unless it breaches 14,222 levels, Mohammad said.

If 14,222 is violated, then the slide shall get extended towards 14,100 levels. However, a bounce towards 14,400 can be an opportunity to initiate fresh shorts for bigger targets placed in the 13,950–13,800 zone.

Volatility has gradually been inching higher ahead of the Union Budget, with India VIX up by 1.60 percent from 24.01 to 24.39 levels. "Volatility has spiked above 24, which is causing some pause in the positive momentum and needs to cool down below 20 zone," said Chandan Taparia of Motilal Oswal.

On the options front, maximum Put open interest was at 14,000 followed by 13,000 strike, while maximum Call open interest was at 15,000 followed by 14,500 strike. Call writing was seen at 14,500 then 14,400 strike, while Put writing was seen at 14,100 and unwinding at 13,800 strike.

The above options data indicated that the Nifty could see an immediate trading range of 14,100-14,500.

The Bank Nifty opened moderately higher at 32,275.15 but could not surpass its hurdle of 32,500 even after a positive move of HDFC Bank and drifted towards 31,650. It moved hand-in-hand with the broader market, with all the banking stocks trading in the red barring HDFC Bank.

It closed the day down 435 points, or 1.35 percent, at 31,811.80 and formed a bearish candle on the daily scale.

"The Bank Nifty continues to form lower tops-lower bottoms from the last two sessions. Now till it remains below 32,000, weakness could be seen towards 31,500 and 31,250, while on the upside, hurdle is seen at 32,200 and 32,500 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

A positive setup was seen in UPL, PVR, Reliance Industries, Eicher Motors, Titan, Jubilant Foodworks and HDFC Bank. Weakness was seen in Indiabulls Housing Finance, M&M Financial, Petronet LNG, Tata Steel, ONGC, NMDC, LIC Housing Finance, Mahanagar Gas, Manappuram Finance, JSW Steel, Hindalco, Escorts, IndusInd Bank, Bajaj Finance, Glenmark Pharma, Dr Reddy's Labs and Cadila Healthcare, he added.