Nifty outlook: F&O: Market setup shaky; don’t get carried away by bounce, stay light

By Chandan Taparia


Nifty witnessed a rollercoaster ride as it started the session with marginal loss and then rallied sharply in initial trades towards the 9,100 level. The index crossed its previous swing high of 9,039, but failed to sustain at higher levels and fell sharply in the later half to trim all the intraday gains. Eventually, index ended the session around its opening price and, in the process, formed a Shooting Star candle on the daily chart, which indicated that the bearish setup is intact at higher levels.

We witnessed the formation of a Bearish Alt-Shark pattern on the hourly chart as the index started correcting precisely from its reversal zone. Pharma stocks remained the flavour for third consecutive session and rallied by more than 20% in last three sessions. Going forward, if Nifty sustains below 8,555 level, then we may see a pause in the recent bounce and it may see a corrective move towards 8,300 and then 8,000 levels, while the 9,000 – 9,200 zone would act as a strong hurdle for the bulls to change the short-term market trend.

In monthly options, maximum Call open interest stood at 9,000 and then 10,000 levels while maximum Put OI was at 8,000 then 7,500 levels. There was nominal Put writing at 8,500 followed by 9,000 levels, whereas Call writing was seen at 9,000. Options data indicated the immediate trading range between 8,200 and 9,200 levels.

India VIX moved up 0.85 per cent to 52.24 level. It moved up marginally after the decline of last four sessions, but overall, it cooled down from higher levels, which may provide some strength to the bulls.

Bank Nifty witnessed a tremendous short-covering move in the initial hour of trade and rallied by more than 1,800 points from opening lows. In line with the benchmark index, Bank Nifty also corrected sharply in the later half and shaved off all its intraday gains and ended the session below the 19,000 mark.

It formed a Doji candle on the daily chart with a large upper shadow, indicating selling pressure at higher levels. Going forward, the immediate resistance for Bank Nifty is placed at 19,700 and then 20,500 levels while support can be seen around 18,000 level. Overall, the medium-term chart structure remains negative and any bounce could be sold again at higher levels. Traders shouldn’t get carried away by the bounce and are advised to remain light on positions.

Nifty futures closed negative with 1.31 per cent loss at 8,759 level. A good amount of long buildup was seen in Cadila Healthcare , Torrent Pharma, Shriram Transport Finance, TVS Motor and Manappuram Finance, while some shorts were seen in Ramco Cement, PVR, Federal Bank, Shree Cement and Ambuja Cement.

(Chandan Taparia is Technical & Derivative Analyst at MOFSL. Investors are advised to consult financial advisers before taking an investment calls based on these observations)