Technical View: Nifty forms bearish candle, may test 50-day SMA if selling pressure continues

The Nifty traded lower throughout the session and closed at one-month low on December 10, dragged down by negative global cues and concerns over fiscal deficit arising out of lower tax collections.

The index formed a large bearish candle, which to some extent resembled the marubozu formation. In a perfect marubozu candle, open and high have the same value and so do day's low and close, but on December 10, there was a negligible difference of two points at both ends.

The bearish candle indicates selling pressure and maybe hinting at a resumption of downtrend after a brief pause seen a day earlier, which had led to the indecisive doji formation, experts say.

After opening higher at 11,950.50, the Nifty immediately slipped and extended selling pressure as the day progressed. It touched an intraday low of 11,844.70 in late trade and closed 80.70 points lower at 11,856.80.

"In the next session, if the index trades below 11,854 levels for more than 30 minutes, then it’s ideal destination shall be the test of 50-day simple moving average whose value for next session is placed around 11,749, where some buying interest can be expected," Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.

For the time being, stability and upsides should not be expected unless the Nifty closes above 11,953, he said.

Hence, intraday traders can look to short below 11,850 for a target of 11,790 with a stop above intraday high, Mohammad said.

"The index took resistance around 20-DEMA and continued to make lower lows throughout the day. It made lower highs - lower lows for the third consecutive session and closed below its immediate support of 11,888 level, which doesn't bode well for the bulls," Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services, said.

On the monthly options front, maximum Put open interest was at 11,500 followed by 12,000 strike, while maximum Call open interest was at 12,000 followed by 12,200 strike. Some writing was seen in 11,900, 12,000 and 12,200 Call options. Marginal Put writing was seen at 11,900 and 11,500 strikes followed by unwinding in 12,000–12,100 strikes.

The options data suggests the Nifty could trade in a range of 11,700 to 12,100.

India VIX fell by 2.12 percent to 14.29 levels.

In line with the benchmark indices, the Nifty Bank, too, started correcting from initial trades and formed a red body candle on the daily chart.

The banking index moved within the territory of the previous day’s trading range and thus formed an Inside Bar pattern on the daily scale. The index closed 156.40 points lower at 31,160.30.

"It closed below 20-day EMA on the daily chart and till the time the Bank Nifty sustains below its resistance zone of 31,500–31,600, a corrective move towards 31,000–30,800 levels cannot be ruled out," Taparia said.