The Nifty lost half a percent during the week due to sharp correction on Friday and formed Inverted Hammer kind of pattern on the weekly scale.
The Nifty50 fell sharply and wiped out momentum of last six trading sessions to slip towards 10,750 levels on Friday. The index plunged nearly 200 points for the first time in last nine consecutive sessions, forming big bearish candle on the daily charts.
Concerns on global economy growth and threat of partial US government shutdown dented market sentiment globally, but the consistent fall in oil prices continued to support the market.
Experts expect the consolidation to continue in the coming sessions and the index is likely to defend crucial support of 10,700 levels, experts said, adding the trading volume could be low in coming week as FIIs generally go on leave during Christmas and New Year.
The Nifty50 after opening flat extended losses as the day progressed and touched an intraday low of 10,738.65 in late trade. The index closed 197.70 points or 1.81 percent lower at 10,754.
The Nifty lost half a percent during the week due to sharp correction on Friday and formed Inverted Hammer kind of pattern on the weekly scale.
"After a brief outperformace vis-à-vis global markets in the month of December Nifty50 appears to have resumed its downswing, perhaps in solidarity with global trends, as it signed off the last session of the week with a large bearish candle which has erased almost last 5 sessions of labored upmove," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
He said this single day’s fall changed the picture on weekly charts which depicted a Shooting Star kind of formation with a long upper shadow. Hence, if the index trades below 10,738 in next session for atleast one hour then it shall again resume its downtrend, according to him.
He said in any case post Friday's fall appear to have set the tone for a short term downswing with a top in place at a recent high of 10,985 levels.
Hence, he advised traders to short this market by making use of rallies with a stop of 11,000.
On the downsides selling shall get further accentuated if Nifty50 decisively breaches 10,700 levels with an initial target of 10,463, Mazhar said.
India VIX moved up sharply by 11.59 percent at 15.99 levels. Recovery in volatility from lower zones is now restricting the upside of the market.
VIX has to hold below 16 zones to get a bullish momentum else tough fight could be back in the market, Chandan Taparia, Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited said.
On the option front, maximum Put open interest (OI) was seen at 10,000 followed by 10,700 strikes while maximum Call OI was at 11,000 followed by 10,900 strikes.
Meaningful Call writing was seen at 11,000 followed by 10,900 strike which may restrict its upside move while Put unwinding was seen at all the immediate strike price.
Option band signifies a trading range in between 10,650 to 10,929 zones.
"The Nifty Index formed a big bearish candle on daily scale and an Inverted hammer on weekly scale which suggest that bulls are loosening their grip in the market," Chandan Tapria said.
Now if it sustains below 10,850 zones then short term trend could turn negative for a decline towards 10,650 zones while on the upside hurdle is seen at 10,850 then 10,929 zones, according to him.
Bank Nifty failed to hold above 27,350 and slipped towards 26,850 zones. It corrected by more than 400 points and formed a bearish candle on daily scale and a Shooting Star on weekly scale. The index closed 405.45 points lower at 26,869.65.
Now it has to cross and hold above 27,000 zones to get a short term stability and a move towards 27,250-27,350 zones while on the downside support is seen at 26,666 levels, Chandan said.
