Technical View: Nifty may correct toward 20-month EMA if it breaks 22,500 zone, VIX at 2-month low

Nifty Rangebound

The Nifty 50 sustained above 22,500 amid rangebound trading for three days in a row, closing flat on February 27, the expiry day for monthly derivative contracts. Bears are still in a strong position, signaling the continuation of a "sell on rally" strategy, experts said. As long as the index holds above 22,500, a rebound toward 22,720 (the upper end of the downside gap from February 24) is possible. If this gap is filled, the 22,800-22,900 levels are the next levels to watch, which is a possible scenario considering the VIX reaching a 2-month low. However, in the case of a breakdown below 22,500, the 22,400-22,350 zone will be the key support level.

The Nifty 50 opened higher at 22,567 and climbed to 22,613 in early trade but immediately erased those gains and remained rangebound for the remainder of the session. The index finished at 22,545, down 2.5 points, and formed a bearish candlestick pattern with upper and lower shadows, resembling a high wave kind of candlestick pattern on the daily charts, following an Inverted Hammer formation in the previous session.

According to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, the short-term trend of the Nifty remains weak with rangebound movement. "Nifty is expected to slide down to the immediate support around the 22,400 level (20-month EMA) in the short term. Immediate resistance is placed at 22,625," he said.

The weekly options data indicated that the index is expected to be in the range of 22,500-23,000 levels in the short term.

On the Call side, the maximum Call open interest was seen at the 23,000 strike, followed by the 22,600 and 23,500 strikes, with the maximum Call writing at the 22,600 strike, followed by the 22,500 and 23,000 strikes. On the Put side, the 22,500 strike holds the maximum open interest, followed by the 22,600 and 21,500 strikes, with the maximum Put writing at these strikes in a similar sequence.

The Bank Nifty outperformed the benchmark Nifty 50, rising 135 points to 48,744, forming a Doji candlestick pattern on the daily charts, indicating indecision among bulls and bears. The index, as expected, moved closer to 49,000 intraday but saw selling pressure at higher levels.

"While the index rejected the previous day’s high (48,862), it failed to close above it, signaling caution. Once again, the 8-day EMA at 48,972 acted as resistance," Anshul Jain, Head of Research at Lakshmishree Investments, said.

According to him, a decisive move below 48,625 is needed to trigger fresh downside momentum.

Meanwhile, the India VIX, the fear index, reached a 2-month low on Thursday, giving further comfort to bulls. It declined by 2.97 percent to 13.3, the lowest closing level since December 27, 2024, continuing its downtrend for the seventh consecutive session.