Nifty 50 and Bank Nifty Face Test of Sustainability Amid Consolidation Recovery

Nifty 50 Continues to Trade Within a Downward-Sloping Channel

The Nifty 50 index has been forming a lower high–lower low structure on the daily chart, indicating a weakening broader trend. The index is trading within a downward-sloping channel, and further recovery or follow-up buying interest is unsustainable. The Nifty 50 needs to close and sustain above its recent swing high of 24,100 to trigger a sharp uptrend. Until then, consolidation may be seen with immediate support at 23,200, while the immediate resistance is seen at 23,700-23,800.

Market Breadth Favors Bulls

On June 2, the Nifty 50 rose 101 points (0.43 percent) to 23,484, while Bank Nifty gained 72 points to 53,715. The market breadth also favored bulls, as about 1,797 shares advanced compared to 1,176 declining shares on the National Stock Exchange.

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Nifty Outlook and Strategy

Aditya Thukral, Founder & Analyst of AT Research & Risk Managers, notes that the Nifty 50 opened with a gap on the downside and recovered from previous swing lows. However, the index's lower high and lower low formations define a downtrending market. A bounce could still sustain for another couple of days before resuming its downward journey. The index continues to sustain below all the major exponential moving averages, and all of them are sloping downwards.

The market breadth deteriorated with selling pressure spreading to mid-cap and small-cap stocks as well. The next couple of days, markets might try to play mean reversion moves, as one leg of the fall seems to have completed. Also, the structure remains incomplete with this fall, and another leg of fall will most probably be seen in the days to come. The short covering rally could only be witnessed once the index starts sustaining above 23,900.

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As far as the positioning in the derivatives segment is concerned, the participants were seen creating and holding short selling positions; however, some long positions were also created but lacked confidence.

Key Resistance and Support Levels

• Key Resistance: 23,625, 23,800
• Key Support: 23,370, 23,200

Strategy

Sell Nifty Futures on the rise around 23,750 with a stop-loss of 23,850, targeting 23,550.

Bank Nifty Outlook and Positioning

Aditya Thukral notes that the banking index experienced a bounce from previous swing lows after opening gap down. The fall seems impulsive in nature, and once a corrective upmove is completed, the index will again try to fall in an impulsive structure. The short-term structure of a downtrend remains in force where lower highs and lower lows were seen on the price charts.

The index remains below all the major exponential moving averages, and the bears hold complete grip over it. The index will continue to remain under pressure until it is below its long-term moving averages. Based on all these observations, sell on the rise should be the strategy until a fresh swing high is not formed.

Key Resistance and Support Levels

• Key Resistance: 54,200, 54,700
• Key Support: 53,500, 53,000

Strategy

Sell Bank Nifty Futures on the rise around 54,500 with a stop-loss of 54,800, targeting 53,900.

Overall Outlook

The broader outlook remains negative, and a sell-on-rise strategy continues to be favored. A decisive breakout above the immediate resistance zone would be required to negate the current bearish setup and signal a potential shift in short-term sentiment.