IGI Logo

Nifty witnessed another week of losses and closed on a bearish note, marking the fourth consecutive week of declines. On the daily timeframe, a Head and Shoulders breakdown has emerged on the index. This reversal pattern breakdown points to lower targets of 23,300 in the mid-term.

Breadth analysis, which provides insights into the market's overall health, indicates a weak outlook. Only 15% of NSE stocks are trading above their 50-day moving average, and just 9% are above their 20-day moving average, suggesting a possible relief but overall, a strong bearish grip. Furthermore, the number of stocks with RSI in the bullish zone has dropped to 20%, indicating exhaustion in upward momentum. Additionally, the Bull Bear Index of trend indicators like MACD also points to muted breadth.

Technically, while this scenario does indicate an oversold state in the market, it does not suggest renewed buying momentum that could push the index back to its all-time highs. We believe the Nifty will trade within the 23,800 – 24,400 range in the short term, and overall, this correction has been healthy for the market.

Options data points to the highest short build-up at the 24,400 – 24,500 levels on the call side, while fresh long build-up is seen at 23,800 – 24,000. There was some short covering at 24,200 – 24,300 on the call side, and we expect a small relief rally to be on the cards, but it is critical to break the 24,500 level to shift the scenario. The ATM IV for Nifty is at 14.40, indicating a move of nearly 1% on an intraday basis, while the difference between ATM IV and HV has increased, pointing to potential whipsaws ahead.

Bank Nifty, on the other hand, has broken below a critically important trendline, with resistance evident at 51,200 to 51,800, while the 51,800 level also shows short build-up on the call side. On the lower side, fresh long build-up is seen at 50,000 – 50,300. Overall, the expected range is between 50,500 – 51,500. The ATM IV for Bank Nifty is at 16.7, indicating a move of more than 1% on an intraday basis.

For the coming week, it is expected that a minor rebound could be seen amid the sell-off, but it will face multiple resistances on the higher side for both indices. We maintain a cautious view with a "sell on rise" strategy.

Above views are of the author and not of the website kindly read disclaimer