Trade setup for Jan 27: More downside for Nifty ahead of F&O expiry? Check out key market cues before Thursday's session

Indian equity benchmarks managed to end a volatile session well in the green on Tuesday thanks to a fag-end recovery, led by gains in financial, auto, metal energy stocks. Both headline indices closed 0.6-0.7 percent higher, having lost more than six percent in five straight sessions. The Nifty Bank ended 2.1 percent higher to break an eight-day losing streak.

The Nifty50 has formed a long bull candle on the daily chart with a long lower shadow, partially engulfing the long bear candle of the previous day, according to Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

"This indicates a type of counterattack bulls pattern at the lows ... Hence, a further follow-through upmove could open a sizable bounce in the market ahead," he said.

The short term formation is still on the weak side, though the intraday texture suggests the continuation of a pullback in the next couple of sessions, said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities.

"Volatility will remain as concerns related to geopolitical developments, rising oil prices and the Fed's likely move on key rates will continue to keep investors on the edge," he said. Back home, the monthly futures & options series is due for expiration on Thursday.

Traders can expect 17,400-17,450 levels if the index succeeds in holding the 17,000-17,100 support zone, he said.

At 7:59 am on Thursday, Singapore Exchange (SGX) Nifty futures -- an early indicator of the Nifty index -- were down 375 points or 2.2 percent at 16,889, suggesting a gap-down start ahead on Dalal Street.

Equities in other Asian markets hit their lowest in more than 14 months and short-term US yields hit 23-month highs, after Fed Chairman Jerome Powell signaled plans to steadily tighten policy. MSCI's broadest index of Asia Pacific shares outside Japan was down 1.6 percent at the last count.

Japan's Nikkei 225 plunged more than 2.5 percent to a 52-week low, China's Shanghai Composite fell 0.9 percent and Hong Kong's Hang Seng 2.2 percent.

S&P 500 futures in Asia were down 1.5 percent. On Wednesday, the S&P 500 and the Dow Jones fell 0.2 percent and 0.4 percent respectively, though the tech stocks-heavy Nasdaq Composite finished flat.

HDFC Securities' Shetti believes the 50-scrip index is ready to show an upside bounce. "A confirmation of bottom reversal, going by Tuesday's low, is likely to pull the Nifty towards 17,800 in the near term. Any dips could find support around 17,100," he said.

Independent technical analyst Manish Shah believes the underlying sentiment in the index has turned marginally bullish, and one could see a rally to 17,550-17,600 over the next couple of days. On the lower side, he sees support at 17,690-17,600, which as long as held should lead to more upside.

"On a day to day basis, the Nifty will continue to be volatile and one can expect some knee-jerk reactions during the course of the day," he warned.

Exchange data shows that the maximum call open interest is accumulated at the strike price of 18,000, with 1.7 lakh contracts, and the next highest at 17,500, with 1.4 lakh contracts. On the other hand, the maximum put open interest is placed at 17,000, with 1.1 lakh contracts.

This suggests immediate resistance at 17,500 followed by a major hurdle at 18,000 and significant support at 17,000.

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

Five stocks in the BSE 500 pack hit 52-week highs: Maruti Suzuki, PowerGrid, ABB, Bharat Dynamics and Hitachi Energy.

As many as 22 stocks in the broadest index on the bourse hit 52-week lows, including SBI Cards, LIC Housing, HDFC Life, HDFC AMC, Petronet, MGL, Spandana Sphoorthy, IndiaMART, Strides Pharma Science, Wockhardt and V-Guard.

NSE's India VIX index—which gauges the expectation of volatility in the near term—settled 6.4 percent lower at 21.4 on Tuesday, having surged as much as 5.7 percent during the session.