Technical View: Caution prevails; Nifty 50 faces panic-selling risk below 22,500; Bank Nifty needs to hold…

As per the latest business developments, The Nifty 50 expectedly rebounded to test the 22,800 resistance level intraday but failed to sustain upside amid renewed selling pressure in the latter part of the session. The index ended 0.4 percent softer at a fresh six-month low on September 30, marking a negative start to the October series.

The month gone by saw the Nifty 50 slide 6 percent, its biggest monthly correction since March, when the index declined more than 11% amid West Asia tensions. The index formed a long bearish candle on the monthly timeframe.

The index remained well below its short-term moving averages, which were sloping downward on the monthly chart. On the weekly timeframe, it continued to trade below its short- and medium-term moving averages, which were additionally trending softer, and remained 238 points away from the 200-week EMA at 22,383. On the daily chart, the index sustained below its 20-, 50-, 100- and 200-day EMAs, signalling continued caution and bearish pressure.

Going forward, 22,500 is anticipated to act as an immediate and crucial backing for the Nifty 50. A decisive break below this level could trigger panic selling and drag the index towards the April low of 22,182, which stays a crucial short-term backing. On the upside, the 22,800–23,000 zone is likely to act as an immediate resistance area. Sustaining above this zone over the next few sessions could gain the possibility of an upmove towards 23,300–23,500, as per specialists who keep advocate a sell-on-rallies strategy.

The Nifty 50 opened softer at 22,665 and remained volatile throughout the session. The index advanced resilience in the afternoon, hitting an intraday high of 22,809. That stated, it erased all those upside after 2 pm and ended at 22,620, its lowest closing level since March 30, down 96 points, or 0.42 percent.

On the daily timeframe, the index formed a bearish candle with a long upper shadow, highlighting selling pressure at elevated marks and a continued bearish bias.

The daily RSI remained below the 30 level at 25.27. While this indicates that the index is in oversold territory, the MACD remained downward-sloping below the zero line, with the red histogram expanding for the third consecutive session, indicating that bears keep have the upper hand. Hence, sustained buying interest along with short covering would be required for a meaningful directional shift.

"The underlying trend of Nifty keeps be negative. A softness below 22,500 could open further slide down to 22,200-22,100 marks in the near term," stated Nagaraj Shetti, Senior Technical Research Market observer at HDFC Securities.

Any bounce-back could face key resistance around the 22,800 level, he further noted.

Weekly options data continued to signal that the Nifty 50 is likely to stay in the 22,500–23,000 range in the short term. The 23,000 strike, where maximum Call open interest is concentrated, could act as a crucial resistance zone. In the meantime, the 22,500 strike, which has the maximum Put open interest, could provide key backing to the index.

In the meantime, the India VIX remained elevated, rising 0.58 percent to 13.49 on Wednesday, signalling continued caution among bulls. The risk is relatively contained as long as the VIX stays below the 14 level. That stated, a climb above and sustained move beyond 14 could gain the risk for bulls.

The banking index, that stated, outperformed the benchmark Nifty 50, rebounding 373 points, or 0.69 percent, to end at 54,633. That stated, it failed to sustain marks above 55,000 on a closing basis due to earnings booking in late trade.

Bank Nifty formed a bullish candle with a noticeable upper wick on the daily timeframe and closed above the previous day's high for the first time since September 11. This signals buying traction at softer marks, although follow-through buying would be required to confirm a potential change in trend.

The broader structure stays weak, with the index continuing to trade below key EMAs while its short- and medium-term EMAs are trending softer.

The RSI has shown some improvement, indicating the possibility of a bounce, but stays below its signal line. The MACD continued to trend softer and remained below the reference line, although the softness in the histogram eased after four consecutive sessions of red-bar expansion.

Going forward, the 54,200–54,100 zone could act as backing. A break below this zone could trigger fresh selling towards 53,700, stated Sudeep Shah, Vice President – Technical and Derivatives Research at SBI Securities.

On the upside, 55,100–55,200 could act as an immediate hurdle. A sustained move above this zone could extend the pullback towards 55,700, he further noted.