Technical View: Nifty signals caution ahead of budget week, 24,000 to play crucial role

Nifty, Bank Nifty downtrend

The Nifty 50 failed to sustain 24,800 and closed with a percentage loss amid rising volatility on July 19, signaling caution ahead of the Budget week. The index managed to defend 24,500 intraday as well as on a closing basis. If the weakness persists, then 24,200 followed by 24,000 are the levels to watch on the downside. However, on the higher side, 24,800-24,900 is the target zone, experts said.

The Nifty 50 started the day above 24,800 and hit a fresh all-time high of 24,855 but immediately lost momentum and extended the downtrend as the day progressed. It closed at 24,531, down 270 points or 1.09 percent, forming a long bearish candlestick pattern, resembling a Bearish Engulfing pattern at the top on the daily charts with above-average volumes. This is a trend reversal pattern, so participants need to be cautious next week.

Normally, the formation of such a Bearish Engulfing pattern after a reasonable upside is considered a top reversal pattern. Hence, one may expect follow-through weakness in the short term, Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities said.

The negative divergence and crossover on the momentum indicator indicate that the weakness can continue.

For the week, the index formed a bearish candlestick pattern with a long upper shadow on the weekly charts, indicating selling pressure at higher levels, although it continued forming higher highs for the ninth consecutive week. It was up 0.12 percent or 29 points.

"The weekly candle pattern could be considered as a part of the Shooting Star type pattern. However, a confirmation of the Shooting Star signals a crucial trend reversal for the markets," he said.

According to him, the next lower supports to watch are around 24,200 and 24,000 levels. Immediate resistance is at 24,850 levels.

As per the monthly options data, the maximum Call open interest was seen at the 25,500 strike, followed by 26,000 and 25,000 strikes, with maximum Call writing at the 26,000 strike, and then 25,000 and 24,700 strikes. On the Put side, the 24,000 strike holds the maximum open interest, followed by 23,500 and 24,500 strikes, with maximum writing at the 24,500 strike, and then 23,300 and 24,100 strikes.

The above options data indicated that 24,500 is expected to be a key area to watch, with crucial support at 24,100 and resistance at 25,000.

Bank Nifty

The Bank Nifty also witnessed selling pressure, falling 355 points or 0.67 percent on Friday to 52,266 and forming a bearish candlestick pattern on the daily scale, but overall remained in the range of 52,800 on the higher side and 52,150 on the lower side. The index needs to break on either side for further direction, with 52,000 being crucial on the lower side and 53,000 on the higher side.

During the week, the banking index was down just 13.3 points and formed a small bearish candlestick pattern with a long upper shadow on the weekly timeframe.

"The active Call writing and Put covering suggest weaker sentiment. Traders should maintain a sell-on-rise strategy, with resistance at 52,500. Bullish positions are recommended only if the index closes above 52,500," Rupak De, Senior Technical Analyst at LKP Securities said.
According to him, further weakness is expected if it closes below its 21-day EMA at 52,000.

Meanwhile, the volatility remained in a range of 12-15 levels and closed above the 200-day EMA (Exponential Moving Average - 14.6). The India VIX rose 2.17 percent to 14.83 from 14.22 levels, and going forward, if it sustains above today's closing, then bulls need to be cautious. For the week, it was up 8 percent for another week.

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