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The Indian stock market witnessed significant bearish pressure on August 26th, particularly impacting the Nifty 50 and Bank Nifty indices. The Nifty 50 experienced a notable decline of 1 percent, primarily triggered by the Trump administration's official notification regarding the imposition of an additional 25 percent tariff on Indian goods, effective August 27th. This development has escalated the total U.S. tariff on Indian goods to a substantial 50 percent, creating considerable uncertainty and apprehension among investors. This unexpected trade-related announcement acted as a catalyst, prompting a sharp sell-off across various sectors within the Indian market, as investors reacted to the potential adverse impact on Indian exports and overall economic growth. The immediate consequence of this news was a breakdown below crucial technical levels, including the 20-day and 50-day Exponential Moving Averages (EMAs), as well as the midline of the Bollinger Bands, all within a single trading session. This simultaneous breach of multiple technical indicators served as a strong signal of growing bearish sentiment among market participants, suggesting a shift in momentum towards further downside potential. The article highlights that the 100-day EMA, currently positioned at 24,635, is now at risk, adding to the prevailing anxiety ahead of the monthly Futures and Options (F&O) expiry scheduled for August 28th. Technical analysts suggest that a decisive break below this crucial support level could trigger a further correction towards the August low of 24,340. Conversely, a rebound from Tuesday’s low or the index finding support could see a test of the 24,850 level, which represents the convergence of the 10-day, 20-day, and 50-day EMAs. The trading session witnessed the Nifty 50 opening lower at 24,899 and remaining under consistent selling pressure throughout the day. It reached an intraday low of 24,690 in the late trading hours before ultimately closing 256 points (1.02 percent) down at 24,712. This price action resulted in the formation of a long bearish candle on the daily chart, further reinforcing the prevailing negative sentiment and the absence of any significant buying interest to counter the selling pressure. The overall market breadth remained subdued, indicating that the selling pressure was widespread across various stocks and sectors, rather than being concentrated in a few specific areas. The Nifty 50 has now shed 450 points from its recent swing high of 25,150, which was reached on the previous Thursday, indicating a substantial correction within a short timeframe. The Relative Strength Index (RSI) has declined to 45.92, giving a bearish crossover signal, while the Moving Average Convergence Divergence (MACD) has maintained a positive crossover, albeit with the histogram still positioned above the zero line. This suggests a divergence in momentum, with the RSI indicating weakening strength and the MACD showing a slightly less pronounced negative trend. The piercing of the opening upside gap of August 18 on the downside, coupled with the Nifty's failure to show any recovery from the gap support near 24,700, further strengthens the bearish outlook for the index. Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, expresses a pessimistic view, stating that this is "not a good sign." He believes that the underlying short-term trend of the Nifty remains weak and identifies the next support levels to watch around 24,600, followed by 24,400. However, he also suggests that a sustained bounce above 24,900 could potentially trigger short covering in the near term, providing some temporary relief to the market. The market was closed on August 27 for Ganesh Chaturthi.
Analysis of options data indicates that the Nifty 50 is expected to trade within the 24,500–25,000 range in the immediate future. This observation is based on the positioning of Put and Call open interest. The maximum Put open interest is concentrated at the 24,000 strike, followed by 24,500, 24,600, and 24,700. This indicates that a significant number of traders are betting on the Nifty 50 not falling below the 24,000 level. Further supporting this notion is the fact that maximum Put writing was observed at the 24,700 and 24,600 strikes, implying that traders are actively selling Put options at these levels, further reinforcing the expectation that the Nifty 50 will find support around these levels. On the Call side, the 25,000 strike holds the maximum Call open interest, followed by 24,800 and 25,200. This indicates that a substantial number of traders believe that the Nifty 50 is unlikely to surpass the 25,000 level. Furthermore, maximum Call writing was seen at the 25,400 strike, followed by 25,350 and 25,550. This suggests that traders are actively selling Call options at these higher levels, signaling a resistance zone and reinforcing the expectation that the Nifty 50 will struggle to break through these levels. The Bank Nifty also experienced substantial selling pressure, declining by 689 points (1.25 percent) to close at 54,450, marking its lowest closing level since May 9. The formation of a long red candle on the daily timeframe further underscores the bearish sentiment surrounding the Bank Nifty. A critical development was the decisive break below the 100-day EMA, which occurred for the first time since April. This breach of the 100-day EMA, coupled with the breaking of the August low in a single session, serves as a confirmation of the prevailing bearish undertone and signals a potential shift in the overall trend of the Bank Nifty.
According to Sudeep Shah, Head of Technical Research and Derivatives at SBI Securities, a breakdown below the 100-day EMA typically signals a trend reversal, prompting market participants to exercise caution. This observation highlights the significance of the 100-day EMA as a crucial technical indicator that can influence investor sentiment and trading decisions. Adding to the negative setup, the daily RSI has fallen below the 40 mark and continues to trend downward, signifying weakening momentum and increasing selling pressure. This falling RSI suggests that the Bank Nifty may remain under pressure unless a strong reversal or support level emerges. Sudeep Shah anticipates that the Bank Nifty will continue its downward trajectory, potentially testing 54,000, followed by 53,500 in the near term. This projection is based on the prevailing bearish momentum and the absence of any significant bullish catalysts. However, on the upside, the 54,900–55,000 zone is expected to act as a key resistance area. This level represents a potential hurdle that the Bank Nifty may struggle to overcome in the event of a short-term bounce. Meanwhile, the India VIX, often referred to as the fear gauge, has risen above its short-term moving averages and closed 3.7 percent higher at 12.19, signaling rising caution among bulls. This increase in the India VIX indicates that investors are becoming more apprehensive about the future direction of the market and are seeking protection against potential downside risks. Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. This disclaimer serves as a reminder that the information provided in the article should not be considered as financial advice and that readers should consult with qualified professionals before making any investment decisions.