Technical View: Bears may tighten grip if Nifty 50 breaks 22,800 support; Bank Nifty may face more selling pressure below 54,900

The Nifty 50 snapped its two-day winning streak on October 19, reversing a significant portion of the gains recorded over the previous couple of sessions, as the index fell 1.1 per cent on the weekly F&O expiry day. This marked a weak start to the holiday-shortened trading week, with market participants turning cautious amid elevated oil prices and profit booking following the previous week's 2.8 per cent rally.

The index failed to sustain above its 20-day exponential moving average (EMA) and decisively cross the 38.2 per cent Fibonacci retracement level of the decline from 24,774 to 22,180. It subsequently retreated sharply, signalling a loss of short-term momentum. Going ahead, the 22,800 level is expected to act as an immediate and crucial support for the Nifty 50, as it broadly coincides with the 23.6 per cent Fibonacci retracement level and the 10-day EMA.

A break below this level could open the door for a correction towards 22,600–22,500. On the upside, the 23,000–23,200 zone is expected to act as a resistance area. A decisive move above this range could bring the bulls back into action, according to market experts. The Nifty 50 opened on a flat note and touched an intraday high of 23,175 in early trade before reversing its gains. The index extended its losses as the session progressed, hitting a low of 22,845 in the final couple of hours of trade.

It eventually settled at 22,889, down 257 points, or 1.11 per cent. On the daily chart, the index formed a long bearish candle, indicating sustained selling pressure. The daily Relative Strength Index (RSI) moderated after reaching 52.81 in the previous session, although it continued to trade above its signal line, suggesting that momentum remained relatively stable despite the pullback. The Moving Average Convergence Divergence (MACD) continued its upward trajectory towards the zero line, while the green histogram bar expanded for the fourth consecutive session.

These indicators suggest that the broader recovery momentum has not been entirely negated by the latest decline, although the price action points to near-term weakness. "The correction has brought Nifty close to its key support at 22,800, where the 20-day SMA coincides with the previous swing high. The bullish setup in indicators and oscillators remains intact, and the latest decline does not, by itself, signal a trend reversal," said Vinay Rajani, Senior Technical Research Analyst at HDFC Securities.

According to Rajani, the Nifty could find support around 22,800 and resume its uptrend. However, a decisive break below the positional support at 22,500 would weaken the bullish outlook and warrant caution. Monthly options data also point to key levels to watch. The 22,500 strike, which has the highest Put open interest, could provide crucial support for the Nifty 50. On the upside, the 23,000 strike, with the highest Call open interest, is expected to act as immediate resistance, followed by the 23,200 strike, which has the next-highest Call open interest and could pose another significant hurdle.

Meanwhile, the India VIX, the market's volatility gauge, jumped 5.33 percent to 14.77. It remained elevated and traded above all its key moving averages, signalling increased caution for bulls. A decisive move above the 15 mark could heighten risks for the market, while a decline below 12 could provide some comfort to bullish investors. The stock market will remain closed on October 20 on account of Dussehra.

The Bank Nifty also witnessed profit booking after gaining for two consecutive sessions. The index fell 356 points, or 0.64 percent, to close at 55,488. On the daily chart, the banking index formed a bearish candle and slipped below its 20-day EMA, indicating weakness amid above-average trading volumes. Following Monday's correction, the Bank Nifty remained below all its key moving averages. The RSI declined to 48.25 from 51.91 in the previous session but continued to trade above its signal line.

Meanwhile, the MACD maintained its upward trajectory and bullish crossover, although the green histogram bar contracted after expanding in the previous week. These signals indicate a mixed momentum setup, with near-term price action remaining weak despite some underlying positive momentum signals. Going ahead, the 55,000–54,900 zone is likely to act as a crucial support area for the index. A decisive break below 54,900 could trigger further selling pressure, said Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities.

On the upside, the 55,900–56,000 zone is expected to act as an immediate resistance area. A sustained move above 56,000 would be required to strengthen the recovery and open the door for further gains, he said. Overall, a decisive breakout above or below these key levels is likely to trigger a trending move in the index, Shah added.