Nifty may have formed a short-term top; momentum indicators turn bearish

According to Ravi Nathani, an independent technical analyst, the Nifty may underperform and seek support around 22,445, 22,365, and 22,250 in the near term.

Nifty 50 Index

The Nifty 50 index, currently trading at 22,519.40, displayed a notable red candle last week, suggesting selling pressure or profit booking at higher levels. This closing at the lowest point of the week indicates a bearish sentiment and potential short-term top formation on the charts.

Traders should be cautious as the index may encounter selling pressure on any upward movements in the near term. Regarding resistance levels, significant barriers are anticipated at 22,595, 22,675, and 22,800. These levels are crucial for traders to observe as selling opportunities, especially considering the supportive signals from technical indicators like the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI). Both indicators indicate bearish tendencies, reinforcing the potential for underperformance in the near term.

 

Conversely, support levels for the index during this period of underperformance are expected at 22,445, 22,365, and 22,250. A close below the critical support level of 22,250 could trigger panic selling, leading to further downside momentum.

In such a scenario, traders should closely monitor support levels at 22,100 and 21,800, as they could serve as significant buying opportunities. Traders are advised to exercise caution and avoid buying near immediate support levels.

Instead, consider accumulating positions gradually around these support levels and increase exposure significantly around the critical support levels of 22,100 and 21,800.

By adhering to this strategy and closely monitoring price action alongside key support and resistance levels, traders can navigate the current market conditions with greater confidence and effectiveness.

Nifty Mid Select Index

The Nifty Mid Select Index, currently trading at 10,939.30, is anticipated to exhibit a range-bound movement in the near term, with potential resistance at 11,050 and 11,140, and support around 10,825. This range is expected to serve as a pause point, indicating a period of indecision before the index determines its next directional move.

Given the broader market expectations for a correction, it is advisable to adopt a cautious approach when trading this index. Selling on rallies and booking profits could be a prudent strategy, allowing traders to capitalize on short-term gains while minimizing exposure to potential downside risk. Buying opportunities may arise near support levels, providing opportunities for re-entry into the market.

In the event of a breakout above the resistance range of 11,140, the next resistance levels to watch for are around 11,300. Conversely, if the index breaks below the support level of 10,825, it may indicate a stronger bearish momentum, with potential support at 10,750 and 10,600.

For swing traders, it is crucial to monitor the index closely, particularly if it trades below 10,850, as this could signal a significant shift in market sentiment towards the bearish side.

In such scenarios, the first buying opportunity may arise at around 10,275 or even at 10,000 levels. By remaining vigilant and aligning trading decisions with key support and resistance levels, traders can navigate the market effectively, ensuring that their trades are well-timed and in line with prevailing market conditions.

(Ravi Nathani is an independent technical analyst. Views expressed are personal).