Nifty signals subdued sessions ahead: Key technical indicators show index overbought, raise caution

The Nifty benchmark index began the week with a slight downturn, slipping to an intraday low of 22,075 during the first hour on February 26. There was some recovery thereon, but the index eventually closed 0.41 percent lower at 22,122. Analysts caution traders against building aggressive long positions on Nifty 50, since technical indicators are showing overbought conditions in the index.

Yesterday, profit booking was observed in some of the index heavyweights at higher levels. Majority of the sectors ended in the red. However, buying was seen in Oil & Gas, Auto, and Realty. India Volatility Index (VIX) surged 4.19 percent to end the day at 15.60. Its movement in the past 2-3 weeks has been in a range between 14.50 and 16.50. According to experts, any move below 14.50 would infuse further confidence into the market, while the 16.3-16.5 levels now pose as resistance. A cautious stance should be exercised once India VIX closes above 16.50 levels.

Globally, investors would take cues from macro data releases lined up during the week. The US new home sales data for January would be an important event to track on February 27.

Going ahead, here’s how technical analysts are positioning the indices:

“On the daily chart, consecutive small-body candles indicate subdued trading sessions for the benchmark Index. This situation is quite apparent as the markets are experiencing a robust uptrend. However, overbought indicators are leading to a lack of subsequent buying and a noticeable absence of price corrections. Consequently, traders are focusing more on individual stock opportunities rather than overall index movements,” said Rajesh Bhosale, Technical Analyst, Angel One.

Trading opportunities exist on both sides of the trend, and traders are advised to adopt a highly selective approach. “The encouraging bounce from lower levels observed last Thursday has boosted bullish sentiment and deterred bears, supporting a ‘buy on dip’ strategy. Thursday’s low around 21,900, coinciding with the 20EMA, serves as robust support, with 22,000 also significant as a psychological pivot. On the other hand, as we navigate uncharted territory, the range of 22,300 to 22,380 presents a key immediate resistance level based on reciprocal retracement analysis,” said Bhosale.

“Despite the overall bullish tone, negative divergence on key momentum indicators suggests caution, particularly against aggressive long positions, especially overnight ones. Traders are advised to monitor these levels closely and adjust their trading strategies accordingly,” he added.

“Foreign Institutional Investors (FII) noted a buy of 29 crore in index futures. Open Interest (OI) Put-Call Ratio (PCR) was at 0.96 with an Implied Volatility (IV) of 15.1 up 9 percent suggesting slight weakness creeping back into the Nifty. Put unwinding at 22,000, along with OI build-up at 21,900 and 21,500, was noted. Call option writers’ aggression picked up at the 22,200 strike. The range for day trading is to buy near support – 22,050/21,875 support and resistance at 22,200/22,300,” stated Akshay Bhagwat, Senior Vice President of Derivative Research at JM Financial.

Bank Nifty

Bank Nifty was an underperforming sector compared to Nifty in yesterday’s trading session. The highest OI on the Call (CE) side came down to 47,000 CE with 2.49 lakh contracts, while the highest OI on the Put (PE) side is at 46,500/46,000 PE, each with 1.3 lakh contracts. Aggressive OI additions were mainly seen in CE strike prices from 46,600 CE to 47,000 CE. Immediate support is seen at 46,400, followed by the 46,200-46,000 band.

“Bank Nifty has approached/tested its support of 46,500/46,400 levels followed by 46,200/46,000 support band. Immediate resistance at 47,000 above which it can test 47,500/48,000 levels,” said Soni Patnaik, Assistant Vice President of Derivative Research at JM Financial.

Sudeep Shah, Deputy Vice President and Head of Derivative and Technical Research at SBI Securities, believes that the immediate support for Bank Nifty lies at the 20-Day Exponential Moving Average (EMA) zone of 46,350-46,300 while resistance is placed at 46,800-46,900 zone. “In case 46,300 breaks, the index can test its next support placed at 45,900-45,800. Above 46,900, the index could witness a short-covering move up to 47,200-47,300.”

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