Technical View | Upside breakout likely as Nifty faces resistance without sharp weakness

Price and momentum indicators are suggesting a further downside over the next few trading sessions.

The Nifty50 lost all the previous day's gains and closed in the red on August 10 after the Reserve Bank of India (RBI) raised its full-year inflation forecast and announced an incremental cash reserve ratio of 10 percent for banks while maintaining the status quo on policy rates.

But overall, the index traded within the previous day's range and repeatedly faced resistance at downward sloping resistance trendline (adjoining previous swing highs from the record high on July 20), without any major correction, indicating the possibility of the Nifty breaking on the higher side soon.

Hence, once the index breaks 19,650-19,700 levels, experts expect a sharp upside towards the much-awaited 20,000 mark in coming sessions, with crucial support at 19,500.

The Nifty50 opened moderately lower at 19,606 and traded within the range of 19,624-19,495 during the day. The index managed to hold the 19,500 mark on a closing basis for the fifth consecutive session, and settled at 19,543, down 89 points, forming a bearish candlestick pattern with minor upper and lower shadow on the daily charts.

Technically, "this pattern indicates sideways movement in the market with weak bias at the crucial resistance of 19,650 levels. The repeated testing of the hurdle without showing any sharp weakness could eventually result in an upside breakout of the said resistance," Nagaraj Shetti, technical research analyst at HDFC Securities said.

He believes that a decisive move above 19,650-19,700 levels is expected to bring a sharp upmove for the market ahead and further weakness from here could find support around 19,450-19,400 levels for the short term.

The Option data indicated that 19,600 is expected to be a crucial resistance zone for the Nifty, while the support could be at 19,500-19,400 levels.

On the weekly Option front, we have seen the maximum Call open interest at 19,600 strike, followed by 20,000 strike on the weekly expiry day, with Call writing at 19,600 strike, then 20,600 strike. On the Put side, the maximum open interest was at 19,500 strike, followed by 19,400 strike, with writing at 19,500 strike, then 18,600 strike.

Bank Nifty

The Bank Nifty has reacted negatively to the RBI policy move and fell nearly 340 points to close at 44,542, forming a bearish candlestick pattern with a long upper shadow on the daily charts. The index has repeatedly managed to take strong support at the 44,500 zone on a closing basis, while facing the resistance at 45,000-45,100 levels.

Hence, 44,500-44,300 is expected to be crucial for the downside in coming sessions, whereas the breaking of 45,000 on a closing basis can bring more upside, experts said.

"The Bank Nifty witnessed selling pressure from the key hourly moving averages placed in the range of 45,000 – 45,100. The daily and hourly momentum indicator has a negative crossover which is a sell signal. The Bank Nifty has decisively closed below the 40-day moving average which is a sign of weakness," Jatin Gedia, technical research analyst at Sharekhan by BNP Paribas said.

Thus both price and momentum indicators are suggesting a further downside over the next few trading sessions. On the downside, 44,000 is the short-term target, he says.