Technical View | Nifty forms large bearish candle on weekly charts, expert say pullback possible

Technical View

The Nifty continued to see a sharp correction for the fourth consecutive session on January 21 amid consistent selling by FIIs, inflation concerns and caution ahead of the Union Budget. All sectoral indices, barring FMCG, closed in the red.

The index formed a Doji candle on the daily chart as the closing was near the opening tick, indicating indecisiveness among bulls and bears. It formed a large bearish candle on the weekly scale as the closing was much lower than the opening level.

Given the nearly 4 percent correction in four straight sessions, a pullback is be possible in coming sessions, but it the index slips below 17,485, the low on January 21, a steep fall can’t be ruled out, experts said.

After opening sharply lower at 17,613.70, the Nifty remained under pressure throughout session. It touched an intraday high of 17,707.60 and a low of 17,485.85, closing 139.85 points, or 0.79 percent, down at 17,617.15.

The index corrected 3.5 percent during the week.

“The Nifty50 continued its slide for the fourth session in a row, hinting at the resumption of medium-term down trend with a lower top at 18,350 level,” said Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.

This sharp cut of 865 points over the week resulted in a large bearish candle on the weekly charts, strengthening the bearish sentiment, he said.

A pull back attempt, however, can’t be ruled out in the next one or two sessions as the correction had dragged the index into a “sort of oversold zone”, he said.

At an intraday low of 17,485, the Nifty seems to have taken support at its 50-day simple moving average before bouncing back. It is critical that the index defends the low of 17,485, as a breach can pull the Nifty down towards 17,350, Mohammad said.

For the time, traders should to remain neutral on the long side where as short positions can be partly covered, he said.

On the options front, in the monthly series, maximum Call open interest was at 18,000 then 18,500 strike, while maximum Put open interest was at 17,000 followed by 17,500 strike.

Marginal Put writing was seen at 17,500 and 17,700 strike, while meaningful Call writing was seen at 18,000 and 17,800 strike.

Options data suggests that the Nifty may see a wider trading range of 17,300-18,200, while the immediate range could be 17,450-17,850, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

India VIX rose by 6.17 percent to 18.88 levels, indicating wild swings in the market.

Bank Nifty

The Bank Nifty opened gap down at 37,522.35. Even though it hit 37,224 during the day, it witnessed stellar recovery in the last hour. It bounced back after taking support at its 50-day exponential moving average (EMA) and closed with losses of around 276.5 points, forming a small-bodied bullish candle on the daily scale.

There was a bearish candle formation on the weekly scale, negating its lower lows formation of the last three weeks.

“Now till the Bank Nifty holds below 37,750 levels, weakness could be seen towards 37,250 and 37,000 levels while resistance can be seen at 38,000 and 38,150 levels,” Taparia said.

On stocks front, a bullish setup was seen in Biocon, HUL, Maruti Suzuki, Hero MotoCorp, Trent, Cholamandalam Investment, Pidilite Industries, HDFC Bank and Hindalco. Weakness was seen in Polycab India, L&T Technology Services, Zee Entertainment, Dr Lal PathLabs, Info Edge, Bajaj Finserv, Havells, Strides Pharma Science, Dixon, Voltas, Manappuram Finance, LIC Housing Finance, Max Financial Services, Lupin, PI Industries, Divis Labs, L&T Finance Holdings, Mindtree, L&T Infotech, BPCL, M&M Financial, and Mahanagar Gas, Taparia said.

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