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The Indian stock market witnessed a turbulent session, with the Nifty 50 index experiencing a significant decline, signaling potential further weakness in the near term. The Nifty 50 decisively breached its recent consolidation range and the 22,500 support level, succumbing to a gap-down opening and subsequently falling below the 20-month Exponential Moving Average (EMA) for the first time since June 2020, a period marked by the onset of the COVID-19 pandemic. This breach is a significant technical indicator, suggesting a shift in market sentiment and a potential continuation of the downward trend. The formation of a long bearish candle across daily, weekly, and monthly charts further reinforces this bearish outlook, highlighting the intensity of selling pressure and the lack of buying support at higher levels. The index's proximity to the 100-week EMA at 22,042 adds another layer of concern for investors. A decisive break below this level could trigger further downside movement, with the next significant support level positioned at 21,800, representing the low recorded on June 5, 2024. A breach of this level could then pave the way for a further decline towards 21,281, the low observed during the Lok Sabha elections results. These levels serve as crucial benchmarks for investors to monitor, as they represent potential areas of price stabilization or further acceleration of the downward trend. Conversely, in the event of a rebound, technical analysts suggest that the 22,300-22,400 range will serve as a key resistance level. A sustained move above this level could indicate a temporary reprieve from the bearish pressure, but it would require significant buying momentum to overcome the prevailing negative sentiment. The day's trading activity vividly illustrates the extent of the market's weakness. The Nifty 50 opened sharply lower at 22,433 and continued its descent throughout the session, eventually reaching an intraday low of 22,105 before closing at 22,125. This represents a substantial decline of 420 points, or 1.86 percent, marking the largest single-day loss since October 3, 2024. This magnitude of decline underscores the severity of the selling pressure and the prevailing bearish sentiment among investors. The Relative Strength Index (RSI), a momentum indicator, further corroborates this bearish view, having dropped to 22.40, the lowest level since March 2020, the height of the COVID-19 market turmoil. This oversold condition suggests that the market may be due for a short-term bounce, but it does not necessarily signal a reversal of the overall downward trend. The presence of unfilled opening downside gaps in recent trading sessions is another cause for concern. These gaps, often referred to as bearish runaway gaps, typically form in the middle of a trend, indicating a strong continuation pattern. According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, these unfilled gaps suggest that further weakness is expected in the upcoming week. Shetti emphasizes the sharply downward underlying trend of the Nifty, highlighting the breach of the immediate support at 22,400 (the 20-month EMA). He anticipates a potential slide towards the next lower support levels of 21,800-21,700, representing the swing lows of March-April 2024. He identifies immediate resistance around 22,300, further emphasizing the challenges faced by any potential rebound. The options data provides additional insights into the potential support and resistance levels for the Nifty. The data suggests that the index may find key support at 21,800 and resistance in the 22,300-22,500 zone. This information can be valuable for traders looking to establish positions based on anticipated price movements. The weekly derivative data reveals that the maximum Call open interest is concentrated at the 22,500 strike, followed by the 23,000 and 22,300 strikes. This suggests that there is significant selling pressure at these levels, making it challenging for the index to break above them. The maximum Call writing is also observed at the 22,500 strike, further reinforcing this resistance. On the Put side, the 21,800 strike holds the maximum open interest, followed by the 21,500 and 22,000 strikes. This indicates that there is significant buying interest at these levels, providing potential support for the index. The maximum Put writing is observed at the 21,800 strike, further reinforcing this support. The broader markets mirrored the weakness in the Nifty, with the Nifty Midcap and Smallcap 100 indices experiencing significant declines of 2.5 percent and 3 percent, respectively. This indicates that the selling pressure was not confined to large-cap stocks but extended to the broader market. Sector-wise, the Nifty IT and Auto indices were among the worst performers, plunging 4 percent each, while the Nifty FMCG declined by 2.6 percent. These sectoral declines reflect specific challenges and concerns within those industries, contributing to the overall market weakness.
In contrast to the broader market weakness, the Bank Nifty demonstrated relative strength, outperforming the benchmark Nifty 50 index. The banking index corrected by 399 points (0.82 percent) to 48,345 and found support at 48,300 on a closing basis. This suggests that the banking sector is exhibiting greater resilience compared to other sectors. The formation of a bearish candle with a minor upper shadow and a long lower shadow on the daily charts indicates buying interest at lower levels. This suggests that investors are willing to step in and purchase banking stocks when prices decline, providing a degree of support to the index. However, Anshul Jain, Head of Research at Lakshmishree Investments, cautions that this recovery could be short-lived, given the broader indices' failure to stage a bounce. He emphasizes that the underlying weakness in the overall market could eventually weigh on the Bank Nifty as well. Jain believes that for bears to take control, the index must sustain below 48,250, which could trigger a sharp decline toward 47,950. This level represents a critical threshold for the Bank Nifty, and a sustained break below it could signal a significant shift in sentiment. On the upside, Jain expects any rallies toward 48,500-48,600 to face strong selling pressure. This suggests that the Bank Nifty is likely to encounter resistance at these levels, making it challenging for the index to sustain any upward momentum. The volatility index, India VIX, snapped its seven-day losing streak, rising 4.53 percent to 13.91. While this increase indicates heightened market volatility, the level remains relatively low, suggesting that the market is not experiencing extreme fear or panic. This is considered favorable for bulls, as it suggests that investors are not yet capitulating. The disclaimer at the end of the article emphasizes that the views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to consult with certified experts before making any investment decisions. This disclaimer serves to protect the website from liability and to ensure that readers understand that the information provided is for informational purposes only and should not be construed as investment advice. In conclusion, the Indian stock market is currently facing significant headwinds, with the Nifty 50 experiencing a substantial decline and signaling further weakness in the near term. The Bank Nifty has demonstrated relative strength, but its recovery may be short-lived given the broader market weakness. Investors should closely monitor key support and resistance levels and exercise caution in their investment decisions. The information provided in this analysis is for informational purposes only and should not be construed as investment advice. It is essential to consult with a qualified financial advisor before making any investment decisions.
The technical analysis presented in the article relies heavily on concepts such as Exponential Moving Averages (EMAs), Relative Strength Index (RSI), and options data to assess market trends and potential future price movements. Understanding these technical indicators is crucial for interpreting the analysis and making informed investment decisions. EMAs are lagging indicators that smooth out price data over a specified period, providing a clearer picture of the underlying trend. The 20-month EMA and the 100-week EMA are significant levels that investors often monitor for potential support or resistance. When the price falls below the EMA, it is generally considered a bearish signal, while a move above the EMA is considered a bullish signal. The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the market. An RSI value above 70 typically indicates an overbought condition, suggesting that the price may be due for a correction. Conversely, an RSI value below 30 typically indicates an oversold condition, suggesting that the price may be due for a bounce. Options data provides insights into the potential support and resistance levels for the index, as well as the prevailing sentiment among options traders. The maximum Call open interest and maximum Call writing are typically associated with resistance levels, while the maximum Put open interest and maximum Put writing are typically associated with support levels. The analysis also mentions the presence of bearish runaway gaps, which are gaps that occur in the middle of a downtrend and typically signal a continuation of the downward movement. These gaps are considered significant technical indicators and can provide valuable insights into the potential future direction of the market. Overall, the technical analysis presented in the article provides a comprehensive overview of the current market conditions and potential future price movements. However, it is important to note that technical analysis is not foolproof and should be used in conjunction with other forms of analysis, such as fundamental analysis, to make informed investment decisions. Investors should also be aware of the risks associated with investing in the stock market and should consult with a qualified financial advisor before making any investment decisions. The information provided in this analysis is for informational purposes only and should not be construed as investment advice.