Technical View: Selling pressure may intensify below 22,700 on Nifty 50, 54,400 on Bank Nifty; VIX hits over 4-month high, market breadth weakens

The Nifty 50 extended its losses for a second consecutive session, falling more than a third of a percent on October 21. The index closed well below its short-term moving average, the 20-day exponential moving average (EMA), and continued to trade below its medium- and long-term moving averages (50-day, 100-day and 200-day EMAs), all of which were sloping downward. This signalled broader weakness in the market.

Meanwhile, the India VIX climbed to around a four-and-a-half-month high, indicating rising risk and discomfort among bulls. Adding to the concerns, Brent crude oil futures traded at around $110 a barrel, raising the risk of a higher import bill and inflationary pressures for net oil-importing countries such as India. Market breadth remained firmly in favour of the bears, with broader market indices witnessing sharp declines.

The Nifty Midcap 100 and Smallcap 100 indices fell 1.58 percent and 2.37 percent, respectively. Going ahead, a decisive close below the 22,800-22,700 support zone could open the door for a decline towards 22,500, followed by 22,300-22,200. A break below the latter level could intensify selling pressure. On the upside, the 23,000–23,200 range is expected to act as a key resistance zone, according to market experts.

The Nifty 50 opened with a gap-up on Wednesday, starting above 23,000 and climbing to an intraday high of 23,120. However, the index erased its early gains after the first couple of hours of positive trading and extended its decline as the session progressed. It eventually fell 78 points, or 0.34 percent, to close at 22,811. On the daily chart, the benchmark index formed a bearish candle with noticeable upper and lower wicks, following a long red candle in the previous session.

The formation reflected persistent selling pressure amid heightened volatility. Technically, the index traded well below all key moving averages. The Relative Strength Index (RSI) declined further to 46.27 but remained above its signal line. The Moving Average Convergence Divergence (MACD) maintained its bullish crossover, although the green histogram bar contracted after expanding over the previous four consecutive sessions.

These signals suggest that near-term weakness persists, despite some residual positive momentum in the MACD indicator. “Currently, the Nifty is on the verge of breaking below the 22,750–22,700 support zone, which corresponds to a previously broken resistance level, in line with the change-in-polarity principle. Further weakness below this support zone could drag the index towards the next lows of 22,300–22,200 in the near term,” said Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities.

However, any rebound could encounter key resistance in the 23,000–23,100 range, he added. Monthly options data indicated that the 22,500 strike, which had the highest Put open interest, could serve as a crucial support zone for the Nifty 50. The 22,700 strike, with the next-highest Put open interest, is likely to provide immediate support. On the upside, the 23,000 strike, which had the highest Call open interest, could act as a key resistance level.

The 23,200 and 23,100 strikes, which recorded the next-highest Call open interest, are likely to pose additional hurdles for the index. Meanwhile, the India VIX, which measures the market's expected volatility, surged 6.11 percent to 15.67, its highest closing level since June 8. The sharp rise indicated growing nervousness among market participants. A decisive move above the 17–18 range could signal a further increase in volatility and pose a significant risk to bulls.

The Bank Nifty underperformed the benchmark Nifty 50, falling 511 points, or 0.92 percent, to close at 54,977. On the daily chart, the index formed a long red candle accompanied by above-average trading volumes. It also slipped decisively below its short-term moving averages, indicating that bears continued to dominate the near-term trend. From a technical perspective, the RSI declined to 43.51 and approached a bearish crossover.

The MACD continued to trend downward but remained above its signal line, while the green histogram bar contracted. These indicators point to weakening momentum and suggest that the banking index could remain under pressure in the near term. According to Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, the 54,400–54,500 zone will act as immediate support. A decisive breakdown below this range could extend the correction towards 54,000.

On the upside, the 55,500–55,600 zone, near the 25-day EMA, is likely to act as a resistance area. A sustained breakout above this range could pave the way for a recovery towards 56,000, he said.