Trade setup for Jan 21: Will Nifty find support at lower levels? Check out key market cues ahead of Friday’s session

Indian equity benchmarks finished a choppy session sharply lower on Thursday, extending losses to a third straight day, dragged by IT, financial and oil & gas stocks. However gains in metal shares lent some support.

The Nifty Bank fell half a percent, descending for the sixth day in a row.

The Nifty50 has formed a long bear candle on the daily chart with a lower shadow -- a third of its kind back-to-back, signalling chances of buying emerging from support at 17,650, according to Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

The index is now placed at the support zone of 17,650-17,700, he said.

: Key factors likely to impact market

The correction so far is healthy and one can expect the Nifty to hold the 17,600 level, said Ajit Mishra, VP-Research at Religare Broking. For traders, a major challenge is to tackle volatility amid the earnings season, he said.

"It’s prudent to limit positions and prefer a hedged approach until markets resume the uptrend. Investors, on the other hand, shouldn’t worry much about the recent fall, and stay focused on accumulating quality stocks on dips," Mishra said.

At 7:47 am on Friday, Singapore Exchange (SGX) Nifty futures -- an early indicator of the Nifty index -- were down 130.5 points or 0.7 percent at 17,669.5, suggesting a gap-down opening ahead on Dalal Street.

Equities in other Asian markets declined tracking overnight losses on Wall Street, amid concerns about an earlier-than-expected tightening of monetary policy and the pace of economic recovery in the US due to the Omicron variant of COVID-19. MSCI's broadest index of Asia Pacific shares outside Japan was down 0.5 percent at the last count.

Japan's Nikkei 225 was down 1.4 percent, China's Shanghai Composite 0.4 percent and Hong Kong's Hang Seng 0.1 percent. South Korea's KOSPI was down 0.8 percent and Singapore's Straits Times flat.

S&P 500 futures in Asia were down half a percent.

On Thursday, Wall Street's three main indices dropped 0.9-1.3 percent, a day after the tech stocks-heavy Nasdaq Composite entered correction territory.

HDFC Securities' Shetti believes there is no clear evidence of a bottom being formed at the lows. "A sustainable upmove in the subsequent sessions is likely to confirm a higher bottom reversal. The lower area of 17,650-17,600 levels is expected to be a strong support zone going ahead," he said. 

Selling pressure can pull the index towards 17,350-17,450 in the short term, according to Sahaj Agrawal, Head of Research-Derivatives at Kotak Securities.

"The medium-term outlook remains intact as we don’t see any signs of a trend reversal. On the higher side, we expect the Nifty to conquer 19,000-19,500 going forward," said Agrawal, whose sees value in energy and NBFC spaces, and expects high beta sectors to stay volatile.

Exchange data shows that the maximum call open interest is accumulated at the strike price of 17,800, with 1.2 lakh contracts, and the next highest at 18,000 and 18,600, with more than one lakh contracts each. On the other hand, the maximum put open interest is placed at 17,700, with more than 93,350 contracts, and the next highest at 17,900, with almost 93,000 contracts.

This suggests an immediate hurdle at 18,300 followed by more resistance at Mount 18,000, and meaningful support only at 17,900-17,700.

Here are five stocks that saw an increase in open interest as well as price, suggesting a build-up of long positions:

As many as 16 stocks in the BSE 500 pack hit 52-week highs, including Adani Green, Adani Transmission, Tata Elxsi, P&G Hygiene, Minda Corp, Praj Industries, Lakshmi Machine and Balrampur Chini.

Seven stocks hit 52-week lows: SBI Cards, Ceat, Gillette, IGL, MAS Financial, Spandana Sphoorty and Zydus Wellness.

NSE's India VIX index — which gauges the expectation of volatility — finished the day down 0.2 percent at 17.8, having moved within a range of 17.3-18.5 during the session.