Technical View: Selling pressure may extend if Nifty fails to defend 20-day SMA ahead of exit polls

Market Under Pressure

Bears further tightened their grip on the market on May 30, the expiry day for May derivative contracts, indicating considerable caution ahead of the exit polls due on June 4. The Nifty 50 continued its lower highs-lower lows formation for three days in a row and recorded the biggest single-day fall in the last three weeks. The index broke the 20-day SMA (Simple Moving Average or the mid of the Bollinger Band) as well as the 50 percent Fibonacci retracement on an intraday basis but managed to defend both levels at the close.

If the index manages to take a U turn from these levels, then the possible immediate resistance is seen at 22,700-22,800 zone, but if it fails to defend in the coming session, then the next support to watch out for would be 22,300 levels, experts said.

The Nifty 50 opened lower at 22,618 and remained under pressure throughout the session. It touched an intraday low of 22,417, before closing 216 points or 0.95 percent lower at 22,489. It formed a bearish candlestick pattern with minor upper and lower shadows on the daily charts, indicating a bit of volatility.

"On the daily charts, we can observe that the Nifty is in the process of retracing the rise it has witnessed from 22,054 to 23,111. The Nifty has now reached the support cluster of 22,460 – 22,500 where support parameters in the form of the 20-day moving average and the 50 percent Fibonacci retracement level are placed," Jatin Gedia, technical research analyst at Sharekhan by BNP Paribas said.

He expects the Nifty to hold this crucial support zone and start the recovery process. In case of a breach, the next support is placed at 22,313 – 22,300, he said.

In the monthly options data, the maximum Call open interest was observed in the 22,500 strike, followed by 23,000 and 22,600 strikes, with maximum Call writing at the 22,500 strike, then 22,600 and 22,700 strikes. On the Put side, the 22,500 strike had the maximum open interest, followed by the 22,000 and 22,300 strikes, with maximum writing at the 22,500 strike, then 22,400 and 22,200 strikes.

The options data indicated that 22,500 is expected to be a crucial level to watch out for, where the maximum Call and Put writing has taken place, and Call writers are far more prevalent than Put writers at the same level. Above this, 22,600-22,700 may act as resistance, and support is placed at 22,300-22,200 levels.

Bank Nifty

The Bank Nifty, as expected, rebounded from the mid of the Bollinger band or 20-day SMA, after a correction in the previous couple of sessions. The banking index outperformed the Nifty 50, rising 181 points to 48,682 and formed a bullish candlestick pattern on the daily charts with a long upper shadow. It traded above all key moving averages.

"A recovery in large-cap private bank stocks contributed to keeping the index in the green. The critical support level for Bank Nifty is 48,300, while 49,000 serves as strong resistance. A decisive movement is anticipated once these levels are breached," Rupak De, senior technical analyst at LKP Securities, said.

Meanwhile, volatility was unchanged compared to the previous session but remained above the 24 mark. India VIX closed at 24.18 and formed a Doji candlestick pattern on the daily charts for another session, indicating that the market may be waiting for the exit polls on June 1, and Lok Sabha election results on June 4.

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