Sell-off continuation in markets shows no sign of respite

Update: The Indian benchmark indices slipped nearly 1 per cent during the early deals on Thursday, ahead of March F&O expiry. On the sectoral front, barring Nifty Metal, all other indices ended in red with Nifty PSU Bank and Nifty Realty emerging as the top losers.   

Around 41 out of 50 stocks of Nifty index were trading in red with the top five losers being Reliance Industries, HDFC Bank, TCS, Infosys, and HDFC.   

On the options' front, the 14,400 put option has added more than 20 lakh open interest today itself, while the 14,500 call option added nearly 38 lakh open interest. Besides, Max Pain for March series stands at 14,400 level. 

Nifty started off the session on a negative note and remained under selling pressure throughout the day before closing near the day’s low. At close, Nifty registered a staggering loss of 265 points or 1.79 per cent. Around 47 stocks out of 50 stocks of Nifty index ended in the red.   

The price action of the day formed a sizeable bearish candle which indicates that Nifty has failed the setup of higher lows of the last two trading sessions and broken its 50-DMA. Further, the short-term moving averages i.e., 5-EMA and 8-EMA have again turned down. Also, the index took three days to rise from the low of 14,350 to the levels of 14,878.60 and retraced 61.8 per cent retracement of this three-day in just a single trading session. Adding the above thesis gives us a conclusion that the bears are in a dominating position.   

Nifty seems to be moving in a descending channel since February 16 and the support of this descending channel is placed around the levels of 14,340-14,450. Moreover, the recent correct swing low is also placed around the 14,350 levels. Hence, in the near term, the zone of 14,340-14,450 is likely to act as important support. A decisive breakdown of this support would act as a double whammy for the index as it would result in a breakdown of double bottom pattern as well as descending channel pattern.   

On the upside, rallies are likely to resist around the 50-DMA, which is placed around the 14,770 levels. For bulls to gain any strength, they need to decisively close above the 50-DMA.