F&O: Nifty setup suggests further correction towards 12,150, 12,050

By Chandan Taparia

Nifty opened at new all-time high of 12,430 on Tuesday, but failed to sustain at higher levels and started correcting right from the ‘word go’. The fall got accelerated as the day progressed and resulted in Nifty correcting towards the 12,200 mark.

Eventually, the 50-pack formed a Big Red-Body candle on the daily chart and engulfed the entire trading range of last five sessions. The fall was led mainly by a correction in four index heavyweights – RIL, TCS, Kotak Bank and HDFC Bank. Profit booking started from its strong hurdle of Rising Trendline on the weekly chart, which also coincided with the 100% extension level of the previous up-move on the daily chart.

Looking at the current chart structure, we may see further correction in Nifty towards its next support at 12,150 and 12,050 levels. Now, the immediate resistance for Nifty is shifting lower to 12,330 level; while major resistance is placed in the 12,400 – 12,450 zone.

On the options front, maximum Put open interest was at 12,000 followed by 12,200 levels, while maximum Call OI was at 12,500 followed by 12,400 level. There was a good amount of Call writing in the 12,300 – 12,500 zone, while marginal Put unwinding was seen at strike price 12,200. Options data indicated a trading range between 12,000 and 12,500 levels.

India VIX moved up 9.06 per cent to 15.41 level. We are witnessing a spike in volatility due to the ongoing result season and the upcoming Union Budget 2020.

Bank Nifty made same open and high and started correcting from initial trades. The banking index continued its underperformance against the benchmark index and corrected 1.61% over its previous close. It formed a Bearish Marubuzo candle on the daily chart, indicating complete dominance of the bears, throughout the session.

At the current juncture, Bank Nifty is approaching its support zone at 30,900 – 30,800 and the bulls have to hold this territory for a pullback in the coming days. If it breaches the 30,800 level, we may see further fall towards the 30,500 – 30,300 zone. On the flipside, immediate resistance is placed at 31,500 and then 32,000 levels.

Nifty futures closed negative at 12,266 with a loss of 0.96 per cent. Long buildup was seen in NMDC, Bharti Airtel, Federal Bank, Power Grid, ICICI Pru Life; while shorts were seen in PFC, Oil India, RBL Bank, L&T Finance, Kotak Bank and Lupin.

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