Technical View: Back to back Doji candles signal limited downside in Nifty 50, consolidation may continue with 20 SMA support

Nifty Outlook for January 8

• The Nifty 50 decisively needs to climb and sustain above 26,200 for a resumption of the upward trend. Until then, consolidation with minor weakness may continue, with crucial support placed at 26,000, according to experts.

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The Nifty 50 remained weak with choppy movement for the third consecutive session and closed moderately lower on January 7. The daily lower high–lower low formation continued for another session, with weakening momentum indicating near-term caution for the index. However, the larger-degree higher high–higher low structure remains intact, with the index staying well above all key short-term moving averages, signalling a positive underlying mood.

The index decisively needs to climb and sustain above 26,200 for a resumption of the upward trend. Until then, consolidation with minor weakness may continue, with crucial support placed at 26,000, according to experts.

The Nifty 50 traded lower with range-bound movement and finished 38 points down at 26,141, forming a Doji candle on the daily timeframe with above-average volumes for the second straight session.

Back-to-back Doji formations over the last couple of sessions indicate a lack of sharp downside momentum after the move from new highs. This market action also signals the possibility of a sustainable bounce back from the lows in the short term, said Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

Momentum indicators signal caution, with the RSI declining to 53.96 and showing a bearish crossover. The Stochastic RSI maintained a negative crossover, while the histogram momentum faded further, although the MACD held above the reference line.

According to Nagaraj Shetti, the underlying trend of the Nifty continues to be weak with range-bound action. “The gradual downward correction is expected to end soon and the Nifty is likely to bounce back from near the crucial support of around 26,100–26,000 levels in the short term. Immediate resistance is placed around 26,400 levels,” he said.

Weekly options data suggest that the Nifty 50 is expected to face resistance near 26,200 in the near term, with support placed at 26,100–26,000 levels.

The maximum Call open interest was observed at the 26,200 strike, followed by the 26,500 and 26,300 strikes. The maximum Call writing was seen at the 26,200, 26,150, and 26,500 strikes. On the Put side, the 25,500 strike held the maximum open interest, followed by the 26,100 and 26,000 strikes, with maximum Put writing at the 26,100, 26,150, and 26,050 strikes.

Bank Nifty

The Bank Nifty wiped out the previous day’s gains and slipped slightly below the 60,000 mark, closing 128 points lower at 59,991. The banking index formed a small bearish candle with a long lower shadow on the daily charts, indicating minor weakness along with buying interest at lower levels.

The index continued to hold above all key moving averages. The RSI edged lower but remained above the reference line. The Stochastic RSI sustained a bearish crossover, while the MACD stayed above the signal line, although histogram momentum faded slightly. All these indicators point to mild caution in the near term.

The index once again attempted to stage a recovery in the latter half of the session, leading to the formation of a thin-bodied candle with a relatively longer lower shadow. Bank Nifty ended the day at 59,991, down 0.21 percent.

“Going ahead, the 20-day EMA zone of 59,600–59,500 will act as an immediate support. Any sustained move below 59,500 could lead the index to extend its weakness towards the 59,000 level,” said Sudeep Shah, Head – Technical and Derivatives Research at SBI Securities.

On the upside, the 60,200–60,300 zone will act as immediate resistance, and a move above 60,300 could lead to a continuation of the uptrend in the index, he added.

Meanwhile, India VIX, the fear gauge, dropped below the 10 mark, falling 0.67 percent to 9.95, but remained above its 20-day SMA, signalling some caution for bulls but not indicating any major risk.