Traders should remain neutral even on the short side, as the Nifty approaches near its support points, Mazhar Mohammad says.
The sharp fall in global markets, spooked by the spread of coronavirus beyond China, also rattled Indian equities. The Nifty not only closed below the 100-day EMA, which was placed at 11,938, but also fell below its crucial support of 11,900.
The index formed a large bearish candle, also called as the Long Black Day pattern, on daily charts, as closing was far below the opening tick.
Considering the more than 700-point fall in Dow Jones futures, if the Nifty50 falls further to break the next crucial support of 11,800, then there could be a sharp correction in the coming session, experts say.
The volatility index India VIX jumped by 24.07 percent to 16.99 levels, which is a cause of concern.
Experts feel India VIX is on the verge of giving a trendline breakout and if the move is above 18-18.50 zone, then there could be further volatility in the market.
The Nifty opened sharply lower at 12,012.55, which was also an intraday high, and extended the sell-off in e afternoon to hit the day's low of 11,813.40 in the late trade.
The index closed at 11,829.40, down 251.50 points, the biggest single-day fall since February 1, the budget day.
"In line with the weak global cues, the Nifty50 opened with a gap down and registered a Long Black Day kind of formation with a fall of around 2 percent before signing off the session. In this process, it not only closed below its 100-day EMA (11,938) but also registered a breakdown below the neckline of its Head & Shoulders formation, formed on a daily line chart, with a pattern target of 11,800 and which appears to have more or less met with today's intraday low of 11,813," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
If the Nifty would fail to hold the psychological support placed around 11,800 in the next session, then this correction would initially get extended into the bullish gap zone of 11,783–11,749 registered on February 4, he said.
In case a fresh leg of downside is in progress from the recent highs of 12,246, then to culminate the corrective structure, the index should go below the bottom of 11,614, formed on the post-budget day, unless some sort of triangular consolidation unfolds from the highs of 12,430 registered on January 20, Mohammad added.
For the time being, upsides shall remain capped around 12,000 and traders are advised to remain neutral even on the short side as the Nifty approaches its support points, Mohammad said.
The ongoing correction may continue towards its next support of 200-EMA, placed at around 11,700, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
The options data indicated the shift in the Nifty's lower trading range between 11,700 and 12,100.
Maximum Put open interest was at 11,800 followed by 11,700 strike while maximum Call open interest was at 12,000 followed by 12,200 strike. Significant Call writing was seen at 11,900 to 12,200 strikes.
On the other hand, 12,000 to 12,100 Put writers were running to cover their shorts; while fresh Put writing was seen at 11,700 followed by 11,600 strike.
The Bank Nifty opened with a downside gap and remained in the negative territory throughout the day. It saw a relatively smaller drop compared to the benchmark index but corrected by 1.58 percent to 30,455.10 and formed a bearish candle on the daily scale.
"Momentum oscillator RSI also turned southward and showed some weakness in the index. Since the banking index breached its major support of 30,600, the ongoing correction may extend towards 30,250 then 30,000 levels, while resistance is shifting lower to 30,700 and then 31,000 levels," Taparia said.Exclusive offer: Use code "BUDGET2020" and get Moneycontrol Pro's Subscription for as little as Rs 333/- for the first year.
