Is Nifty and Bank Nifty set for reversal?

Nifty Outlook

The stock market can often feel like a rollercoaster, filled with unexpected twists and turns that leave traders dubious about their next move. Recently, Nifty50, the benchmark index, dropped to a nine-month low of 22,774.85, sparking fear and hesitation among investors. With traders leaning more towards shorting the market than taking long positions, the question arises—is this truly a time for caution, or are we witnessing the beginning of a major reversal?

The reality is that Nifty50 is currently trading at a crucial support zone — one that has been historically significant in turning market sentiment around in the past five years, excluding the pandemic period. As we analyse this technical support, there is a growing sense of optimism that a market reversal might be on the horizon.

Nifty50 Weekly Chart

Looking at the weekly chart of the Nifty50, we notice the index is currently hovering at the 62-week exponential moving average (62WEMA) channel created using the 62WEMA (High) and 62WEMA (Low). This channel has served as a reliable support zone since 2019, consistently triggering reversals whenever the index has tested these levels — except during the sharp fall of 2020.

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Brijesh Bhatia

Senior Research Analyst|Definedge

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The 62WEMA channel offers several advantages for traders, such as smoothing price action, identifying Support and Resistance, and trend confirmation.

Adding further weight to the current outlook, we also observe the King Oscillator at work on the chart’s lower panel. Developed by Definedge, this oscillator merges 14 different indicators to gauge the strength of a trend. Similar to the RSI (Relative Strength Index), the King Oscillator considers the 30 level as the oversold zone. As the Nifty50 index approaches the support zone of the 62WEMA channel, the King Oscillator signals that the market is in an oversold condition. When it moves above the 30 mark, it strongly indicates a potential trend reversal.

Bank Nifty is echoing the reversal opportunity, as the Nifty50 is not alone in showing signs of potential reversal. The Bank Nifty, widely traded in futures and options, mirrors similar technical patterns.

Bank Nifty Weekly Chart

On the weekly chart of Bank Nifty, the index is also positioned near its 62WEMA channel, offering a similar support zone. Additionally, the King Oscillator’s movement from an oversold condition further strengthens the likelihood of a rebound in the sector.

One of the most encouraging signals in the Bank Nifty chart is the appearance of the Bullish Belt Hold pattern at the 47,844 level. This candlestick pattern is often considered a strong bullish reversal signal, particularly when it appears at a support zone like the one we’re seeing now.

The Risk: Prepare for the Worst-Case Scenario

While the technical indicators and chart patterns align to suggest a potential reversal, it's important to remember that the market is never guaranteed. The moving average channel and oscillator signals, though strong, do not ensure that a reversal will happen. Traders and investors should be cautious and prepared for all scenarios.

For Nifty50, a sustainable close below the 22,400 level would invalidate the current bullish outlook and risk the failure of the current chart structure. Similarly, for Bank Nifty, a break below the 47,200 level could negate the chances of a reversal.

Despite the current fear in the market, there are encouraging signs pointing toward a potential reversal in both Nifty50 and Bank Nifty. The technical support levels, the movement of the King Oscillator, and the appearance of a bullish candlestick pattern in Bank Nifty all signal that a potential rebound might be closer than it seems.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is not a recommendation. This article is strictly for educative purposes only.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.