Momentum Continues to Gain Momentum as VIX Cools, Nifty 50 Targets 24,300, Bank Nifty Reaches for 55,800

Nifty 50 Stages Stellar Performance

On May 25, the Nifty 50 index staged a stellar performance, rising more than 1 percent ahead of the monthly derivative contracts expiry due on May 26. The index closed above the 24,000 level for the first time since May 8, marking a strong start to the week. With Monday's rally, the index reclaimed the 50-day EMA (24,006), while the short-term moving averages (10- and 20-day EMAs) continued trending upward.

The momentum indicators also turned positive, with the Relative Strength Index (RSI) soaring to 54.35 with a bullish crossover, while the Moving Average Convergence Divergence (MACD) climbed slightly above the signal line, reflecting a green bar on the histogram for the first time since May 8.

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Considering the optimism among bulls, the Nifty 50 is expected to target 24,300 (the 50 percent Fibonacci retracement of the correction from the February high to the April low), provided the 23,923 level (Monday's low or the upper end of the bullish gap) is defended. Below this, 23,800 (the 20-day EMA or the lower end of Monday's bullish gap) is likely to act as crucial support. On the other hand, above 24,300, the 24,600 level will be the next key level to watch, according to experts.

A sharp fall in crude oil prices, amid rising hopes of a US-Iran peace deal and the possible reopening of the Strait of Hormuz, lifted market sentiment. Brent crude oil futures fell 6 percent to $97.7 a barrel after a gap-down opening and traded well below short- and medium-term moving averages at the time of writing this article.

The Nifty 50 opened 221 points higher at 23,940 and sustained above 23,900 throughout the session. The index picked up further momentum in the last hour of trade and hit an intraday high of 24,054 before closing 312 points (1.32 percent) higher at 24,032. The uptrend extended for a second consecutive session.

On the daily charts, the index formed a bullish candle and closed well above the 38.2 percent Fibonacci retracement level, signalling a healthy trend.

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The monthly options data indicated that the 24,000 level is expected to be a crucial zone for determining the Nifty 50's further direction, while the 23,500-24,500 range is likely to remain the trading band for the index in the short term. The maximum Call open interest was placed at the 24,500 strike, followed by the 24,000 and 24,400 strikes, while the 24,000 strike held the maximum Put open interest, followed by the 23,500 and 23,900 strikes.

The Volatility Index, India VIX, fell sharply by 6.28 percent to below the 17 mark at 16.70 and also slipped below the 100-day EMA, reflecting improved market sentiment. Going forward, a decisive fall below the 15 zone could bring major comfort to the bulls' camp.

Bank Nifty Outperforms Benchmark

The banking index outperformed the benchmark Nifty 50 for another session, rising 1,238 points (2.29 percent) to 55,294 after a gap-up opening. This came in addition to the 1.15 percent rally recorded in the previous session. The index formed a long bullish candle on the daily timeframe after opening above the 38.2 percent Fibonacci retracement levels of both the correction from the February high to the April low and the April rally, signalling a strengthening bullish bias.

The Bank Nifty closed marginally above the 50-day EMA (55,269), while the short-term moving averages (10- and 20-day EMAs) continued trending upward. The next target is now placed at 55,800 (the 50 percent Fibonacci retracement level), followed by 56,300 (the 200-day EMA).

The momentum indicators also supported the rally, with the RSI rising to 54.68 with a positive crossover, while the MACD showed a bullish crossover by moving above the signal line. All these indicators point towards strengthening momentum.

"Going ahead, the banking index is likely to maintain its positive bias and could advance towards 55,800, followed by 56,300 in the near term. On the downside, the 54,900-54,800 zone is expected to act as a key support level," said Sudeep Shah.