Technical View - Jan 22, 2021 - Mr. Nagaraj Shetti, Technical Research Analyst, HDFC Securities
(Time Zone: Arizona, USA)
After a display of high volatility and higher levels weakness on Thursday, Nifty witnessed a sharp fall on Friday and closed the day lower by 218 points. After opening on a weak note, the market made failed attempt to show upside bounce in the early part of the session. The weakness in the market continued for the entire session and the upside bounce attempt in between has failed to sustain.
A long negative candle was formed on the daily chart, which is second consecutive candle formation in the last two sessions. Apparently, the last two sessions market action replicate the pattern of two session weakness of 15th and 18th Jan. The emergence of sharp selling pressure in a very short span of time (without showing reasonable upside bounce or non-consumption of sufficient trading days) hint that the market could be poised for deep correction from here. Long positions needs to be cautious.
The immediate support of 10 day EMA has been broken down again at 14450 and Nifty closed below it. Now one need to watch whether this downside breakout is a valid or a false one. Hence, a negative close on Monday could confirm short term reversal in the market.
A small negative candle with upper and lower shadow was formed on the weekly chart. Technically this pattern could be considered as a high wave type formation at the highs and this indicate a high volatility/confused state of mid among participants ahead of key economic event of Union Budget 2021. The detailed study of Union Budgets of the last 6-7 years suggest a higher possibility of reversal or a sharp trended movement in the market post the event.
Conclusion: The emergence of frequent back to back weakness from the highs indicate higher chances of reversal in the market. The formation of weekly pattern signal high volatility and sell on rise possibility in the next week. The Union Budget of 2021 is expected to be an event for the market to form a reversal. Hence, long positions needs to be protected with appropriate stoploss. A decisive move below 14220 could open a larger downward correction in the market and any rise from here is likely to attract selling pressure around 14460-14520 levels by next week.