Technical View: Nifty forms 'Long Black Day' candle, 13,000 to act as crucial support

The Nifty50 witnessed its biggest single-day fall since May on December 21 as it ended 432.10 points, or 3.14 percent, lower, tracking weakness in European peers and Dow Jones futures after the investors were spooked by the new variant of coronavirus found in the United Kingdom.

The index formed Long Black Day pattern on the daily charts as the closing was much lower than the opening levels. It negated the formation of higher high-higher lows on the weekly scale and broke a rising support trend line on the daily scale, which doesn't bode well for the bulls.

Mechanical indicators are turning negative from overbought territory, so one needs to stay light till the index gains stability, experts said.

The sharp rise in volatility also signalled short-term pressure on the market. India VIX spiked from 18.62 to 23.19.

For the time, intraday traders should short below 13,131 and look for a target of 13,000, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at Chartviewindia.in told Moneycontrol. Positional shorting opportunity for bigger targets shall arise on a close below 13,000 levels, he said.

The Nifty50 opened marginally lower at 13,741.90 and hit an intraday record high of 13,777.50 amid volatility but lost the momentum completely in the afternoon as bears took over Dalal Street. The index ended at 13,328.40, down 432.10 points or 3.14 percent.

"Finally, the bears appear to have established upper hand with a Long Black Day kind of formation as Nifty witnessed a sharp intraday cut of 646 points. This, on the face of it, appears to be like a trend-changing fall for the near term. The behaviour in the recent past appears to be of a different narrative as such bigger single-day corrections in August, October, and November failed to attract a follow-through selling pressure. Hence, at this point in time, more evidence is required to confirm such a trend reversal in the favour of bears," Mohammad said.

Nevertheless, on the downside, immediate support is placed at around 13,000, he said, adding in the next session if the Nifty fails to sustain above 13,131, then weakness may initially get extended towards 13,000 whereas a breach of 13,000 on a closing basis would drag the index towards 12,600.

On the other side, if the index stabilises above 13,130 then it can bounce up to 13,500, he said.

Given the sharp fall, there was a major shift in the Nifty's trading range. The pption data indicates that the Nifty can witness a wider trading range of 13,000 to 13,750 in the coming sessions.

On the option front, maximum Put open interest was at 13,000 followed by 13,200 strike, while maximum Call open interest was at 14,000 followed by 13,000 strike. Marginal Call writing was seen at 13,800 then 13,700 strike, while Put unwinding was seen at an immediate strike price.

The Bank Nifty opened negative at 30,595.80 and witnessed sustained selling pressure. It corrected by around 1,400 points from the intraday high of 30,700 and closed the session with the loss of 1,258.20 points or 4.10 percent, at 29,456.50.

The index formed a Bearish Belt Hold candle on the daily scale and negated higher high-higher lows on the weekly scale.

"Now till it remains below 30,000-30,200 levels, weakness could persist towards next support at 29,000-28,800 levels," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.