The equity market continued with its losing streak for the second consecutive week. Nifty earlier formed an island reversal formation on the daily chart post completing its 50% retracement of the entire fall, which is hinting that Nifty has formed short term top near 9900 levels.
Nifty has earlier negated the formation of a higher top and higher bottom pattern and now it has started making a lower top and lower bottom on the daily chart. The immediate resistance of the previous top is now placed near 9600 levels. So, as long as Nifty trades below these levels, every bounce should be utilized as a selling opportunity.
On the daily chart, Nifty has also formed head and shoulder pattern where the neckline is placed near 9050 levels. If Nifty breaks below 9050 levels decisively, then we can expect further downside towards 8500. MACD oscillator has provided fresh sell crossover on the daily chart. The momentum indicator RSI has also slipped below 50 levels and shows that Nifty is losing its strength and we may see further selling pressure going forward.
The volatility index India VIX remained unchanged near 38 levels. Due to recovery from the lower levels, it has formed a dragonfly Doji candlestick pattern on the weekly scale which is a bullish reversal candle. So, we may expect a spike in the volatility index in the coming week, which will create some pressure on the index.
The options data indicates that the 9000 strikes which have the maximum open interest are providing support. The Call writers were active in the majority of the out-of-the-money strikes where the maximum open interest is placed at 9500 strikes. The options data indicates a broader range of 9000 to 9500.
Bank Nifty continued its underperformance and breached its psychological support of 19000 levels. Now, as long as it trades below these levels we can expect further selling pressure towards 18000 levels which is the next immediate support.
Author: Mr.Nilesh Ramesh Jain, Derivative and Technical Analyst (Investment Services), 18th May 2020