Technical View: As momentum seems to fade in Nifty, further consolidation with negative bias can't be ruled out

Nifty Outlook

The Nifty 50 extended its downtrend for another session but remained within the previous day's trading range, closing with moderate losses on July 3. The index defended the 25,400 level on a closing basis. The Relative Strength Index (RSI) dropped below the 60 mark, settling at 59.74, and is on the verge of a negative crossover. This indicates fading momentum and raises the possibility of consolidation. The Stochastic RSI remained in a negative crossover, however, the India VIX continued to remain favourable for bulls.

If the Nifty 50 fails to defend the 25,400 level, the next support is expected in the 25,300–25,250 zone. On the other hand, if the index rebounds from current levels, 25,500–25,600 will act as the immediate hurdle zone, according to experts.

After initial volatility in the morning, the Nifty 50 gained strength and touched an intraday high of 25,588 during afternoon trade. However, it lost all gains in the final hour and closed at 25,405, down 48 points. It formed a bearish candle with an upper shadow on the daily chart.

Technically, this price action indicates the continuation of a consolidation phase or a minor dip, offering a "sell on rise" opportunity. However, the bullish chart pattern of higher tops and higher bottoms remains intact on the daily chart, and the present weakness could be a part of a new higher bottom formation at lower levels.

“Nifty is nearing an important cluster support around 25,350–25,250 levels — which includes the 10-day EMA, an ascending trendline on the daily chart, and a support zone based on a change in polarity on the weekly chart — where a sharp bounce-back may be expected. Immediate resistance is placed at the 25,600 level,” said Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

Weekly options data suggests that the Nifty 50 is expected to remain in the 25,000–25,600 range in the near term.

On the Call side, the maximum open interest is placed at the 25,500 strike, followed by the 26,000 and 25,600 strikes. Maximum Call writing was seen at the 25,500 strike, followed by the 26,000 and 25,900 strikes.

On the Put side, the 25,000 strike holds the maximum open interest, followed by the 25,500 and 25,400 strikes. Maximum Put writing is observed at these same levels.

Bank Nifty

The Bank Nifty also remained under pressure and continued to underperform the benchmark Nifty 50, falling 207 points to close at 56,792. It formed a bearish candle with a minor upper shadow on the daily chart and slipped below the 10-day EMA (56,850).

The daily RSI dropped below the 60 mark and has already given a bearish crossover, indicating limited upside potential in the near term.

“The zone of 56,550–56,500 will act as immediate support for the index. A sustained move below 56,500 may lead to further correction up to 56,000. On the upside, the 57,100–57,200 zone will act as a crucial hurdle,” said Sudeep Shah, Deputy Vice President and Head of Technical and Derivative Research at SBI Securities.

Meanwhile, the India VIX, the fear gauge, remained favourable for bulls, falling 0.48 percent to 12.39 and continuing to sustain below all key moving averages.