Technical View: Nifty breaks psychological mark of 23,000, could fall towards 22,500 as VIX hits nearly 5-month high

Nifty Downtrend

Bears seem not ready to relinquish control over Dalal Street, decisively breaking the past two weeks' consolidation range of 23,000-23,400 on the downside on January 27, making for a disappointing start to the week. On the other hand, the India VIX reached its highest level in nearly five months, which has made the bulls more cautious ahead of the Budget event scheduled later this week. Hence, if the index decisively closes below 22,800, a fall toward 22,670 and then 22,500 can't be ruled out in the upcoming sessions. However, on the higher side, 23,000 may act as an immediate resistance, according to experts.

The Nifty 50 opened lower at 22,940 and remained under pressure throughout the session, closing at 22,829—the lowest closing level since June 6—down 263 points (1.14 percent). This formed a bearish candlestick pattern on the daily charts, signaling weakness. The momentum indicators also suggest a negative trend ahead.

On the daily charts, "Nifty has broken down from the two-week consolidation on the downside, signaling the resumption of the next leg of decline. We expect the Nifty to drift lower toward 22,670," said Jatin Gedia, Technical Research Analyst at Mirae Asset Sharekhan.

On the upside, according to him, the 23,000–23,050 zone will now act as an immediate resistance zone, as per the principle of role reversal.

The pain was more evident in the broader market, with the Nifty Midcap and Smallcap 100 indices correcting by 2.8% and 3.8%, respectively. Overall, "we continue to maintain our negative outlook on the index," Jatin added.

As per the monthly options data, the maximum Call open interest was seen at the 23,000 strike, followed by the 23,500 and 23,300 strikes, with maximum Call writing at the 23,000 strike, followed by the 22,900 and 23,100 strikes. On the Put side, the 22,000 strike holds the maximum open interest, followed by the 22,500 and 23,000 strikes, with maximum writing at the 22,400 strike, and then the 22,600 and 22,200 strikes.

The above derivative data indicated that the Nifty may trade within the range of 22,000–23,000 in the short term, with immediate resistance at 23,000 and support at 22,600.

Bank Nifty

The Bank Nifty also saw a correction on Monday but still managed to outperform the benchmark Nifty 50, falling 303 points to 48,065. The index dropped below the low of January 13 intraday but managed to sustain above it on a closing basis, forming a bullish candlestick pattern with an upper shadow on the daily charts, as the closing was higher than the opening levels, despite pressure at higher levels.

"Now, as long as it holds below the 48,250 zone, weakness could be seen toward 47,750 and then 47,500 levels, while on the upside, resistance is seen at the 48,250 and 48,500 zones," said Chandan Taparia, Senior Vice President and Head of Technical Research and Derivatives at Motilal Oswal Financial Services.

Meanwhile, the India VIX, the volatility index that measures expected market volatility, increased sharply by 8.29 percent to 18.13, the highest closing level since August 6, 2024. Generally, volatility tends to increase during major events like the Budget.