Technical View: Consolidation in Nifty likely to breakout on higher side given further fall in VIX

Nifty Technical View

The Nifty 50 remained rangebound with a negative bias throughout the session and closed marginally lower on February 20, while the VIX dropped sharply after the Federal Reserve officials supported a pause in interest rates, given the inflation risk in its minutes published last night. The index consistently defended the 22,900 level on a closing basis for the fifth consecutive session. According to experts, if the index holds this level, the chances of an upward move are high in the upcoming sessions. If it clears the first hurdle of 23,000, a rally toward 23,200–23,400 can't be ruled out. However, on the downside, 22,700 is expected to be a crucial support level for the index from here.

The Nifty 50 opened lower by more than 100 points at 22,821. The index gradually recovered those losses amid rangebound trading and finished at 22,913, down 20 points, forming a bullish candlestick pattern on the daily charts.

On the daily charts, the Nifty has been stuck in the range of 22,700–23,050 for the last four trading sessions. A decisive breakout from this range shall set the trend for the upcoming sessions, according to Jatin Gedia, Technical Research Analyst at Mirae Asset Sharekhan.

His outlook on the index remains positive, and he expects this consolidation to break out to the upside.

The broader market has recovered, and the market breadth has been positive over the last couple of trading sessions, which suggests that the rally is likely to continue, he believes.

The Nifty Midcap 100 and Smallcap 100 indices extended their rally further for another session, rising 1.3 percent and 1.4 percent, respectively.

The derivative data suggested that the immediate resistance for the Nifty 50 may be at 23,000 and support at 22,800.

As per the monthly options data, the maximum call open interest was seen at the 24,000 strike, followed by the 23,500 and 23,000 strikes, with maximum call writing at the 23,500 strike, followed by the 23,000 and 24,000 strikes. On the put side, the 22,000 strike holds the maximum open interest, followed by the 23,000 and 22,500 strikes, with maximum put writing at the 22,300 strike, followed by the 22,000 and 22,800 strikes.

According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, a sustainable move above the initial hurdle of 23,100 level could confirm a short-term bottom reversal for the market and could pull the Nifty to further highs. Hence, there is a possibility of an upside bounce in the next 1-2 sessions, he said.

Bank Nifty

The Bank Nifty saw some profit booking after a day of sharp rally, falling by half a percent to 49,335 and forming a Doji-like candlestick pattern on the daily charts, indicating indecision among bulls and bears.

For a fresh upmove, the index must sustain above 49,400, which could trigger momentum toward 49,800. A breakout beyond this level may open doors for a rally toward 50,600, according to Anshul Jain, Head of Research at Lakshmishree Investments.

Until then, dips near support remain good buying opportunities, according to him. Traders should watch for a decisive move above resistance for confirmation of further upside, he advised.

Meanwhile, the India VIX, the volatility index that measures expected market volatility, fell by 4.78 percent to 14.68, a crucial level for further direction. If the VIX falls further, the bulls may gain some comfort.