Trade setup for Jan 25: More pain ahead for Nifty50? Check out key market cues before Tuesday’s session

Indian equity benchmarks suffered their biggest single-day percentage fall since November 26 on Friday, extending losses to the fifth straight session, dragged by an across-the-board sell-off. The Nifty Metal tumbled 5.2 percent and the banking index 1.7 percent.

Volatility gauge VIX surged 20.8 percent to 22.8 on Monday -- its highest close since May 4, 2021.

The Nifty50 has formed an exceptional long negative candle on the daily chart with a minor lower shadow, suggesting a selling climax in the market, according to Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

"Crucial lower support at 17,600-17,500 levels has been broken decisively. Monday's decline has taken the index below the 61.8 percent retracement support level of 17,150... This is a negative sign and a confirmation that the decline seems to be a sharp reversal on the downside," he said.

: What's spooking investors now

The expectation of any decision on a rate hike in the near term triggered widespread selling in the market, said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities. The Nifty has broken below the 50-day simple moving average in a broadly negative sign, though it found support near the 17,000 mark, he said.

He believes a pullback rally could be on the cards, up to 17,300-17,450 levels, if the 50-scrip benchmark manages to trade above 17,050. "On the contrary, a dismissal of 17,050 could trigger one more leg of correction up to 16,900-16,800 levels," he said.

At 7:36 am on Tuesday, Singapore Exchange (SGX) Nifty futures -- an early indicator of the Nifty index -- were down 58 points or 0.3 percent at 16,999, suggesting a weak start ahead on Dalal Street.

Equities in other Asian markets fell on Tuesday despite overnight gains on Wall Street, amid nervousness among investors about the situation in Ukraine and ahead of the outcome of the Fed's scheduled policy review. MSCI's broadest index of Asia Pacific shares outside Japan was down 1.2 percent at the last count.

Japan's Nikkei 225 was down two percent, China's Shanghai Composite 0.6 percent and Hong Kong's Hang Seng 1.8 percent.

S&P 500 futures in Asia were down 0.8 percent. On Monday, the three main Wall Street indices ended a volatile session up 0.3-0.6 percent.

HDFC Securities' Shetti believes the Nifty's near-term trend is sharply negative. He sees the possibility of a bottom reversal in the index around crucial support at 16,900-16,800 levels in the next few sessions. "The confirmation of a bottom reversal could open a bounce from the lows," he said.

Prashant Tapse, Vice President (Research) at Mehta Equities, expects more downside ahead as he suspects the bears to remain in full control of the market. "The technical landscape will improve considerably only above 17,777... Massive profit booking will continue to be the preferred theme in the near term and any risk-on move will have to wait," he said. 

Exchange data shows that the maximum call open interest is accumulated at the strike price of 18,000, with nearly two lakh contracts, and the next highest at 17,500, with 1.7 lakh contracts. On the other hand, the maximum put open interest is placed at 17,000, with more than one lakh contracts.

This suggests an immediate hurdle at 17,500 followed by major resistance at Mount 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:

Three stocks in the BSE 500 pack hit 52-week highs: Adani Transmission, Cholamandalam Investment and ABB India.

As many as 27 stocks in the broadest index on the bourse hit 52-week lows, including HDFC Life, HDFC AMC, LIC Housing, SBI Cards, Aurobindo Pharma, MGL, Petronet, MAS Financial, Spandana Sphhorty, IndiaMART, Cadila Healthcare and Zydus Wellness.