Technical View: Nifty may see more selling pressure if it breaks 25,000 level, Bank Nifty below 50-day EMA

Nifty Downtrend

The Nifty 50 experienced sharp selling pressure with a gap-down opening on October 3, as bearish sentiment dominated Dalal Street amid Middle East tensions. The index fell for the fourth consecutive session, breaking both the upward-sloping support trendline and falling below the short-term moving averages (10- and 20-day EMA – Exponential Moving Average) with above-average volumes.

Additionally, the momentum indicator RSI (Relative Strength Index) showed a negative crossover on both daily and weekly charts, while the MACD (Moving Average Convergence Divergence) turned negative on the daily charts on Thursday. The next support level lies at 25,150, which coincides with the 10-week EMA, followed by 25,000, a key support level that aligns with the 50-day EMA. If these levels are breached, selling pressure may intensify, according to experts. On the upside, the immediate resistance lies in the 25,400-25,500 zone.

The Nifty 50 opened nearly 350 points lower at 25,453 and hit a day's low of 25,230 in late trading. The index ultimately closed at 25,250, down 547 points or 2.1 percent, forming a bearish candlestick pattern on the daily charts. This marked the third consecutive session with a lower-highs, lower-lows formation, while a long bearish candle also formed on the weekly timeframe, down 3.55 percent for the current week.

Technically, this pattern indicates selling momentum to the downside and a sell-on-rise market environment. The unfilled downside gap from Thursday's opening suggests more weakness ahead, according to Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

According to Shetti, Thursday’s sharp weakness shifted the short-term market sentiment to the downside. "There is a possibility of Nifty sliding down to the cluster supports around 25,100-25,050 (weekly 10-period EMA and 23.6 percent Fibonacci retracement) in the coming sessions before showing any reasonable upside bounces. Immediate resistance is at 25,400 levels," he said.

Weekly options data indicates that the 25,300-25,400 range may serve as the immediate resistance area for the Nifty 50, with support found in the 25,200-25,000 zone.

On the Call side, the maximum open interest was seen at the 25,300 strike, followed by the 25,400 and 26,000 strikes, with the highest writing at the 25,300 strike, and then at the 25,400 and 25,500 strikes. On the Put side, the 25,200 strike holds the maximum open interest, followed by the 25,300 and 25,000 strikes, with the highest writing at the 25,200 strike, and then at the 25,300 and 25,100 strikes.

Bank Nifty

The Bank Nifty also opened negatively and faced extended selling pressure throughout the day, closing at 51,845, down 1,077 points or 2 percent. The index formed a bearish candlestick pattern on the daily charts with a lower-tops, lower-bottoms formation for the fourth consecutive session, accompanied by above-average volumes. On the weekly timeframe, there appears to be an Evening Star-type pattern forming (although not a classical one), which is a bearish reversal signal.

The index also closed below its crucial short-term averages. Bank Nifty, which led the upmove in the latter half of September, is now leading the fall. "We expect the decline to continue towards 49,700, the low it touched in August. A retest of those levels is likely. On the upside, 52,600-52,700 is a crucial resistance," said Jatin Gedia, Technical Research Analyst, Capital Market Strategy at Sharekhan by BNP Paribas.

Volatility spiked sharply but remains below the 14 mark. As long as it stays below this level, bulls need to be less concerned. The India VIX rose 9.86 percent to 13.17, up from 11.99.

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