Technical View: Nifty forms bearish candle, traders can avoid long positions

The Nifty failed to hold on to opening gains to slip into the red in the last hour of the trade on May 5, with selling in banking & financials and uncertainty over the impact of lockdown on earnings and economy weighing on sentiment.

The index closed below its 13-day EMA, placed at 9,271, which offered support to the index on minor pull backs in the recent rally and formed a bearish candle on daily charts as closing was lower than opening levels.

The index encountered selling pressure from intraday high of 9,450 levels. Hence, as long as the index remains below 9,450, one should expect weaker trend to prevail, say experts.

The Nifty50 opened sharply higher at 9,429.40 and hit an intraday high of 9,450.90 but turned volatile as the day progressed. It slipped into the red in the last hour of the trade to hit the day's low of 9,190.75. The index closed 87.90 points, or 0.95 percent, lower at 9,205.60.

"In next session if the index trades below 9,190 levels for at least 30 minutes, then it shall extend its corrective swing towards its critical support of 8,900 levels by next one or two trading sessions," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

Near-term strength in the index shall not be expected unless it closes above 9,450 levels, he said.

Traders should avoid long positions, whereas fresh shorting can be considered below 9,190 for a target of 8,900, with a stop above 9,275 on a closing basis, he said.

On the options front, maximum Call open interest was seen at 10,000 then 9,500 strike while maximum Put open interest was at 9,000 then 8,500 strike. Call writing was seen at 10,000 strike while Put writing was seen at 9,000 followed by 8,500 strike.

Significant Call writing was seen at higher strike with falling Put Call Ratio, indicating that weakness could extend towards 9,000 and lower levels.

India VIX fell marginally by 0.14 percent to 43.61 levels.

The Bank Nifty opened on a positive note but the bears were aggressive from initial trades and the selling momentum continued throughout session.

The Bank Nifty corrected by more than 1,000 points from its opening high and underperformed the benchmark index by concluding the session with a loss of 2.39 percent at 19,271.80. The index formed a bearish candle for the second consecutive session.

"It is sustaining below a Rising Trend line breakdown on daily chart, which is a negative sign. RSI oscillator also gave a negative crossover with its average on daily chart," said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

"Till the time the Bank Nifty sustains below 20,000 levels, we maintain our negative stance for a down move towards 18,700 and then 18,000 levels, while resistance is now placed at 20,000 then 20,500 levels," he said.