Trade Setup for Dec 12: Nifty 50 may slide to key support levels; FOMC, ECB rate decisions this week

In an interaction with CNBC-TV18 on Friday, Sunil Subramaniam of Sundaram Mutual Fund said that a lot of existing investors are booking profits as they worry over the clear market direction with the world heading into a recession. "So I think there's some bit of healthy profit booking, which I think is fine, because they will work on the sidelines and then probably wait for the right time to re-enter," he said.

Nagaraj Shetti, technical research analyst at HDFC Securities expects more weakness in the short term for the Nifty 50 as it formed a long negative candle on its daily chart with minor lower shadow. "Technically, this pattern indicates downside breakout of the range bound movement of the last few sessions," he said.

Kunal Shah of LKP Securities witnessed short positions being built up at higher levels for the Nifty Bank index which has outperformed the Nifty 50 recently. According to him, the index trades in a broad range of 43,000 to 44,000, where a significant amount of put and call writing has been witnessed respectively. "The index must decisively breach the range for a trending move on either side," he said.

On Monday, Singapore Exchange (SGX) Nifty futures — an early indicator of the Nifty index — declined 32 points points or 0.17 percent to 18,559, thereby pointing to a flat to negative opening for the market.

Benchmark indices posted another day of losses on Wall Street with the Dow Jones shedding another 300 points, taking the total weekly loss to 2.8 percent. This was the worst week for the index since September. Both the S&P 500 and the Nasdaq fell 0.7 percent each. For the week, both indices were down nearly 4 percent.

The focus now shifts to the US Federal Reserve, which is likely to deliver a 50 basis points rate hike at the end of its December meeting on Wednesday.

Siddhartha Khemka of Motilal Oswal Financial Services expects the consolidative mode in the market to continue until central banks like the Fed, ECB and the Bank of England come out with their policies next week. He also expects weakness in tech stocks to continue, while FMCG may do well on the back of falling commodity prices and better demand.

Support for the Nifty in the coming week is placed in the range of 18,550 - 18,380, according to Ruchit Jain of 4Paisa.com. If the index breaches the support range, it may see a price-wise corrective action towards 18,100. On the other hand, if the support is held, it may lead to a pullback towards levels of 18,650 and 18,730.

For the weekly options expiry on December 15, the 18,800 strike call of the Nifty 50 has added 31.85 lakh shares in Open Interest, followed by the 18,700 call, which added 57.13 lakh and 18,600 call which added 69.52 lakh.

On the downside, the 18,400 strike put added 17 lakh shares in Open Interest, followed by the 18,300 put and the 18,200 put, which added 14.6 lakh and 21 lakh shares respectively in Open Interest.

Among stocks, GNFC remains in the F&O Ban while stocks like PNB, Delta Corp, and BHEL are new entrants to the F&O Ban. Indiabulls Housing Finance will exit the ban from today's trading session.

FPIs invested Rs 36,238 crore in Indian equities for the month of November, according to NSDL Data. Big buying was seein in financial services, capital goods, auto and auto components.

VK Vijayakumar, Chief investment strategist at Geojit Financial Services believes that although India will continue to attract financial capital, the high valuations will be a deterrent.

"Going forward, in the near term, FPIs are likely to make only modest purchases in performing sectors and may continue to sell and book profits in sectors where they are sitting on big profits. More money is likely to move into cheaper markets," he said.

Here are five stocks that saw an increase in open interest as well as price: