In July, the Nifty failed to sustain above the level of 11,108 till the end the month, which has triggered a technical selloff in the market.
The Nifty50 fell to levels of 10,849 on the last day of the week, back on weakness in global markets and uncertain domestic cues.
However, in the second half of the session, the market recovered to the day’s highest level, mainly due to positive developments on the front of foreign portfolio investors’ (FPIs) concerns.
Technically, as long as the index trades below the 11,108-level further selling in the market cannot be ruled out. The trading range for the Nifty has now shifty lower between 9,950 and 12,100 for the coming days.
Currently, the Nifty dropped in the consolidation zone of 10,580 and 11,100. Fifty percent of the trading range act as a major support for the market and since last two days, the Nifty is reversing from 10,850 levels.
If we look at the options data, Put options for the strike price 11,000 is quoting at 160, with an open interest of 34 lakhs, which is highest, still, it is not coming under unwinding even when the market fell to 10,850.
A close below 10,800 would be negative for the market, as it would retrace to either of the following levels 10,700, 10,580 or 10,400.
On the higher side, a pullback can last up to 11,300, and that is possible if the Nifty closes above 11,150. On the basis of indication of a double bottom or positive divergence, the Nifty would start reviving to upward levels.
However, now the doors to 12,100 are locked and the market would require a significant positive news flow to open the same. On August 5, the strategy should be to buy Nifty if it corrects to 10,900, keeping a stop loss at 10,840.
Sector-specific: The Bank Nifty should be on the watch list along with FMCG.
Gold entered in trending wave, which could last up to $1,700 in the coming few months and the Dollar index is trading above 98, indicating money is flowing into safe havens.
The author is a senior VP, Technical Research, Kotak Securities.
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