As we approach Monday, October 28, the Indian stock market’s benchmark indices, Sensex and Nifty 50, are predicted to open flat, in line with mixed global signals.
Trends on the Gift Nifty are hinting at a flattish start for the Nifty, as it was trading around the 24,225 mark, reflecting a marginal premium over the Nifty futures’ previous close.
With recent selling pressure and the backdrop of a global market in flux, Monday’s session may witness a volatile setup.
Friday’s Recap
The domestic equity indices faced considerable pressure on Friday, with both Nifty 50 and Sensex closing significantly lower. Nifty 50, in particular, broke below the 24,200 level, losing 218.60 points or 0.9%, and settling at 24,180.80.
Sensex also declined sharply, losing 662.87 points, or 0.83%, to close at 79,402.29. This sell-off triggered a bearish candle with a noticeable wick on the downside on the daily chart, indicating strong buying near the close.
The overall trend points to a persistent downward pressure, raising concerns among traders and investors alike.
Vinay Rajani, Senior Technical & Derivative Research Analyst at HDFC Securities, observed that Nifty 50 is currently trading below all major moving averages, reinforcing the ongoing downtrend across all time frames.
The daily RSI has slipped into the oversold zone, suggesting that a short-term bounce could occur. Rajani suggests that any pullback might take Nifty towards the 24,600-24,650 range, which corresponds to the neckline of a bearish head-and-shoulders pattern.
Technical Analysis
Technical experts have pointed out several key levels for Monday. For Nifty 50, the range of 24,600-24,650 could act as an upper limit, providing a window for taking short positions or exiting long ones if the index reaches this level.
Should Nifty breach the 23,900 level on the downside, it could open a path toward the next major support at 23,000.
Aditya Agarwal, Head of Derivatives & Technical Analysis at Sanctum Wealth, noted that options data for the monthly expiry shows intensified call writing at 24,000 and above, suggesting resistance at those levels.
On the lower side, put writing at the 24,000 mark indicates potential support, with a possible short-term pullback if the index hovers around this level. Agarwal anticipates that, should the index rebound, resistance could come into play around 24,350 or even 24,440.
In support of this outlook, Jatin Gedia from Sharekhan by BNP Paribas highlighted that Nifty 50 has reached a critical psychological support level around 24,000-24,050.
This coincides with the lower Bollinger Band on the daily chart, which could curb further declines in the near term. Nevertheless, the trend remains predominantly negative, with any pullback up to 24,350 seen as an opportunity to sell.
Nifty 50 Options Data
The open interest (OI) data provides further insights into the market’s sentiment heading into Monday. Recent data indicates that the 24,000 strike level on Nifty 50 has seen considerable put writing, while call writing has picked up above 24,000.
This pattern of OI suggests that traders expect the index to remain subdued, with 24,000 acting as a strong support level, while 24,400 and 24,500 will likely pose challenges for upward movement.
Dr. Praveen Dwarakanath, Vice President at Hedged.in, pointed out that increased call writing above 24,000 signals a bearish stance among options writers.
The short-covering activity seen in in-the-money (ITM) puts further reinforces the expectation of weakness in the index, with a slight possibility of a technical rebound.
Bank Nifty
The Bank Nifty index also witnessed a sharp drop on Friday, closing down by 743.70 points or 1.44% at 50,787.45. Like the Nifty 50, Bank Nifty formed a bearish candle on the daily chart, signifying downward momentum.
Breaking below the crucial support at 51,000, the index now appears vulnerable to further downside. Immediate support lies at 50,500, which has previously acted as a rebound level, while the short-term resistance is set around 52,000.
Aditya Agarwal observed that should Bank Nifty breach 50,400, it could accelerate its descent toward 49,800 or even 49,400. Conversely, if the index bounces back, it will likely face stiff resistance at 51,000-51,200, an area where selling pressure could re-emerge.
The options data for Bank Nifty reveals that call writing is prominent above the 50,800 level, while short-covering in ITM puts suggests that traders are bracing for further declines.
Dr. Praveen Dwarakanath notes that while momentum indicators on both daily and weekly charts show weakness, any temporary rebound could offer another opportunity for traders to establish short positions at higher levels.
Mixed Global Cues
Global market sentiment may also affect Monday’s trade. The Nasdaq saw gains on Friday, with a rally in mega-cap stocks, while the Dow Jones dipped slightly. Investors are keeping a close watch on major earnings reports expected next week, which could swing market sentiment.
On the commodities front, Brent crude futures fell by over 4% on Monday, trading as low as $67.80 a barrel after Israel’s response to an Iranian missile attack targeted facilities unrelated to energy supply.
In the currency market, the Japanese yen hit a three-month low following the Liberal Democratic Party’s disappointing results in Japan’s parliamentary election. The yen’s decline, however, provided some support to Japan’s Nikkei, which rose by 1.6%.
Strategy
Analysts are advocating a “sell on rise” approach given the prevailing downtrend in the market. VLA Ambala, Co-Founder of Stock Market Today, mentioned that the Nifty 50 has formed a bearish belt hold candlestick pattern below the 20-week EMA and is trading around 4% below the 50-day EMA.
This setup suggests further downside in the medium term, and Ambala recommends dip-buying around the 50-week EMA for long-term investors.
Traders should keep a close watch on key levels for both Nifty 50 and Bank Nifty. The prevailing trend is bearish, with opportunities to enter short positions on rallies. Oversold indicators hint at a possible bounce, which could offer entry points for tactical trades.
Also Read: Gold and Silver Prices Face Profit-Booking; Key Levels to Watch on MCX for October 25
Disclaimer: This article is provided for informational purposes only and does not constitute financial advice. The views and analysis expressed in this piece are those of the Stock Market Journal and do not represent investment recommendations. Readers are encouraged to conduct their own research or consult a financial advisor before making any investment decisions. Stock Market Journal is not liable for any losses or gains arising from the use of this information. Market conditions are subject to change, and past performance is not indicative of future results.
