The previous expiry had been a calm one as the benchmark index remained volatile but hovered within a range. There were no big one-sided moves seen in the last week, although the trading range was somewhat big.
In the current expiry, the Nifty is attempting to cross its previous peak of 17,992.2, marked on 19 August 2022, after which the index fell quite sharply. Although the Bank Nifty has already surpassed its respective peak of the same date, the Nifty is yet to catch up. The underperformance of the Nifty is making it difficult for it to touch the psychological level of 18,000 which is proving to be quite a strong resistance.
Image Description: Daily chart of the Nifty 50 (spot)
Image Source: Investing.com
Although the range of the previous expiry has been broken on the upside, a delay in breaking the top is only increasing the probability of a reversal from here. The index has reached a high of 17,980.2 in today’s session which is very close to its previous peak. The price action including the previous rally, followed by a correction and then a rally back to near the previous high has created a Double top chart pattern. This is a bearish pattern and indicates a trend reversal to the downside. Although the pattern is not yet complete, the probability has increased as the index is taking some resistance around the same level.
Now, if the index starts to fall from here, it would further invite bears to step in from these higher levels which could further accelerate the fall. The first early signal of a potential reversal from the current levels would be once the Nifty breaks a low of the previous day. As you can see from the chart, from the last 4 sessions, the index has clearly maintained a distance from the preceding day’s low. Once this pattern distorts, it could signal a fall.
Another concerning thing is the formation of a potential negative divergence at the top. Even if the Nifty crosses its previous high, which could be a bullish signal but then a negative divergence would form which would act as a contrarian signal. This divergence has already formed in the .
Despite today’s green day, the has not eased. The VIX has risen 1.24%, with the market’s rise which is generally not a common behavior. The India VIX rises when the market falls and vice versa because fear of a fall generally soars the premium on options to a higher extent than greed for a rally. Hence rising VIX is indicating that there is some fear in the market despite today’s rally.
So for the current weekly expiry, 18,000 would be a good resistance but even if it gets breached, a massive upside is not expected. On the other hand, 17,500 is strong support for the week.
