Trade setup for Jan 24: More weakness ahead for Nifty50? Check out key market cues before Monday’s session

Indian equity benchmarks ended a volatile session lower on Friday, extending losses to a fourth straight day. Weakness across most sectors, with IT, financial and metal stocks being the worst hit, pulled the headline indices lower.

The Nifty Bank continued to fall for the seventh day in a row, down three percent during this period.

The Nifty50 has formed a small candle on the daily chart with upper and lower shadows, indicating heightened volatility in the market at the lows, according to Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

"Normally, such a doji formation after a reasonable move in either direction is considered an impending signal for a trend reversal. With the market having declined sharply in the last few sessions, one may expect an upside bounce in the short term," said Shetti, who remains of the view that the Nifty's short-term trend is weak with high volatility.

: What's spooking investors now

"Although we were seeing 18,350 as a mild hurdle, we did not expect the Nifty to come off at such velocity. After the index breached 18,100, we did anticipate a further decline towards 17,800, but whatever happened in the last couple of sessions, with it even testing 17,500, has surprised us negatively to some extent," Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One, told CNBCTV18.com.

"We have been mentioning how 17,650 is important in the short term and the real damage of the recent upward trend would start below it. On Friday, we did slip below it but the way market recovered in the last one hour, so we need to revise our levels a bit," he said.

At 7:48 am, Singapore Exchange (SGX) Nifty futures -- an early indicator of the Nifty index -- were down 148 points or 0.8 percent at 17,489, suggesting a gap-down opening ahead on Dalal Street.

Equities in other Asian markets fell on Monday as investors awaited a key policy decision by the Federal Reserve due this week. MSCI's broadest index of Asia Pacific shares outside Japan was down 0.8 percent at the last count.

Japan's Nikkei 225 was down 0.5 percent, China's Shanghai Composite 0.3 percent and Hong Kong's Hang Seng 0.9 percent. South Korea's KOSPI was down 1.7 percent and Singapore's Straits Times 0.2 percent.

S&P 500 futures were up 0.8 percent, suggesting a positive start ahead on Wall Street. On Friday, the three main US indices tanked 1.3-2.7 percent, with the S&P 500 and the Nasdaq logging their biggest weekly drops since March 2020.

Angel One's Chavan sees crucial support for the Nifty50 in the 17,500-17,400 zone this week. "Although the global picture is not good, we still would like to back our inclination towards some relief moves. If any recovery has to happen, there would not be better levels than this," he said.

He believes that the first sign of strength is likely to start above 17,800, after which, the index can reclaim the 18,000 terrain ahead of the Budget itself. "The first couple of sessions will be important for the market as they will set the tone ahead of the mega event (Budget)... One should focus on financial and auto spaces, which are likely to be the front-runners in case of a recovery," he added.

Market participants will begin the trading week by reacting to quarterly numbers of index heavyweights Reliance Industries and ICICI Bank.

Ajit Mishra, VP-Research at Religare Broking, believes the Nifty should hold on to the 17,600 mark for any meaningful recovery, else it may slide to 17,350. He suggests taking hedged positions till the market stabilises.

Exchange data shows that the maximum call open interest is accumulated at the strike price of 18,000, with 1.8 lakh contracts, and the next highest at 18,500, with 1.3 lakh contracts. On the other hand, the maximum put open interest is placed at 17,000, with 1.1 lakh contracts.

This suggests a major hurdle at 18,000, and meaningful support only at 17,000.

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

As many as 15 stocks in the BSE 500 pack hit 52-week highs, including Power Grid, Sun Pharma Advanced, Tata Elxsi, Adani Green, Adani Transmission, Greaves Cotton and Lakshmi Machine.

Ten stocks hit 52-week lows: SBI Cards, IGL, Cadila Healthcare, Zydus Wellness, IndiaMART, Sanofi, Spandana Sphoorty, Jubilant Pharmova, Strides Pharma and MAS Financial.

NSE's India VIX index — which gauges the expectation of volatility in the market — climbed up 6.2 percent on Friday to 18.9, its biggest jump since January 5.