Nifty 50 Falls as Bears Dominate; VIX Declines Offers Hope

Market sentiment turned bearish on November 25, 2023, as the Nifty 50 index fell by 0.33%, marking the third consecutive session under pressure. This decline occurred on the expiry day for November series contracts, with the index closing at 25,885, down 75 points. Despite the bearish trend, a significant drop in the India VIX, the volatility index, raised hopes for a potential recovery.

The Nifty 50 approached a critical support zone around 25,850, which is aligned with the 20-day Exponential Moving Average (EMA) and last week’s low. Analysts suggest that if the index sustains below this level, it could lead to further declines toward 25,700 and 25,500. Conversely, holding above this zone could pave the way for a recovery toward the 26,000 to 26,100 range.

The index attempted to breach the psychological barrier of 26,000 throughout the day, reaching an intraday high of 26,033 before losing momentum. This last-minute sell-off resulted in a bearish candle formation on daily charts, continuing a pattern of lower highs and lower lows for the third consecutive session.

Market Indicators Signal Caution

Technical indicators reflect a cautious sentiment. The Moving Average Convergence Divergence (MACD) has shown a negative crossover, with the histogram falling below the zero line. The Relative Strength Index (RSI) also declined to 54.4, indicating a potential consolidation phase. According to Nilesh Jain, Head of Technical and Derivatives Research at Centrum Broking, “A clear move above 26,000 is essential to spark short covering and pave the way toward 26,200.” He emphasized that the index is precariously positioned near its 21-day moving average at 25,850, and slipping below this support could accelerate downward movement.

Weekly options data indicates that the 26,000 level is crucial for future direction, with resistance anticipated at 26,200 and support at 25,500. The maximum Call open interest is concentrated at the 26,000 strike, followed closely by 26,500 and 26,200. Additionally, the maximum Put open interest is seen at the 26,000 strike, indicating market participants are keenly focused on this pivotal point.

Bank Nifty Shows Resilience Amid Pressure

In contrast, the Bank Nifty index, which includes banking stocks that have a significant weight in the Nifty 50, closed at 58,820, just 15 points lower than the previous session. This index exhibited a bearish candle with an upper shadow on daily charts, suggesting selling pressure at higher levels. Despite this, it remains above all essential moving averages, indicating that the broader trend still favors bullish sentiment.

Technical indicators for the Bank Nifty also suggest caution in the short term. The RSI has slipped to 62.73, and the MACD has turned bearish, remaining below the zero line. Vatsal Bhuva, Technical Analyst at LKP Securities, indicated, “These technical readings suggest the index may trade in a sideways to mildly bearish trend over the next two to four sessions, with a potential retracement toward the 20-day EMA at 58,300 to 58,400.” Immediate support is located at 58,300, while resistance lies at 59,200.

Furthermore, the decline in the India VIX by 7.5% to 12.24 provides some comfort for bulls, extending its downtrend for another session and falling below the 20-day simple moving average. A continued decrease below the 12 zone could further reassure market participants.

Overall, while the Nifty 50 faces significant challenges, the decline in the VIX offers a glimmer of hope for a bullish comeback. Market participants are advised to remain vigilant as the situation develops, particularly around the critical levels identified in the technical analysis.