Nifty 50 Breakout Above 20-DEMA Crucial for Rally Continuation, Bank Nifty Faces 52,700 Key Support

Nifty 50 and Bank Nifty Show Signs of Weakening Bearish Momentum

The Nifty 50 showed a healthy recovery on May 20, closing two-tenths of a percent higher after a gap-down opening for the second time during the week. However, the overall sentiment has not improved yet, with the index sustaining below all key moving averages. The 10-, 20-, 50-, 100-, and 200-day exponential moving averages (EMAs) inclined downward, while the index remained below the 38.2 percent and 23.6 percent Fibonacci retracement levels of the April rally for the last four sessions, indicating that bears continue to have control over the market.

Further, the Relative Strength Index (RSI) rose to 45.64 but sustained below the signal line, while the Moving Average Convergence Divergence (MACD) also remained below the reference and zero lines. However, the red bars on the histogram shrank further for the fifth straight session, indicating weakening bearish momentum. Despite this, the trend still remains negative.

Support has shifted higher to 23,400 from the earlier 23,250 level, given the formation of higher lows. If the index breaks below 23,400 (the 50 percent Fibonacci retracement of the April rally), 23,250 will be the next level to watch, as a decisive fall below it can drag the index toward 23,100–23,000. However, on the higher side, the 23,800–23,850 zone (near 20-day EMA) remains a key hurdle. Only a move above this range can trigger an upward journey; until then, consolidation is likely to continue, according to experts.

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The Nifty 50 opened 160 points lower on Wednesday and hit an intraday low of 23,397, but immediately started recouping those losses and turned positive in the last 90 minutes of trade. The index closed at 23,659, up 41 points (0.17 percent), and formed a sizeable bullish candle on the daily charts, reflecting the stronger presence of buyers over sellers during the session. Similar action was also seen on Monday.

Despite the sharp intraday recovery, the index continues to trade within the 23,839–23,263 range for the sixth consecutive session, indicating a lack of decisive directional movement. According to Nagaraj Shetti, the underlying trend of the Nifty is range-bound.

The monthly options data suggested that the Nifty 50 is likely to remain within the 23,000–24,000 range. Within this band, the 23,500 level has been acting as support since last Thursday. The maximum Call open interest was observed at the 24,000 strike, followed by the 23,700 and 24,300 strikes, while the 23,000 strike holds the maximum Put open interest, followed by the 23,500 and 23,400 strikes, both of which can act as immediate support for the index.

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Meanwhile, the India VIX declined 1.26 percent to 18.44 and closed below its short- and medium-term moving averages, favoring bulls. A decisive fall below the 18 mark could provide more comfort to bullish traders.

The banking index, Bank Nifty, also witnessed a gap-down opening and mirrored the Nifty's price action during the day. The Bank Nifty started 400 points lower at 53,016 and touched an intraday low of 52,836 in early trade, followed by an immediate and gradual recovery as the session progressed. It eventually settled at 53,562, up 153 points (0.29 percent).

On the daily timeframe, the Bank Nifty formed a sizeable green candle after once again taking support at the 52,800 level during the week, but it failed to close above the 50 percent Fibonacci retracement level of the April rally (53,687). In fact, it has remained within the range between the 50 percent and 61.8 percent Fibonacci retracement levels for the third straight session.

Further, the Bank Nifty continues to trade significantly below its key moving averages, all of which are trending downward. The RSI is placed slightly above the 40 mark, indicating the absence of strong directional momentum. Meanwhile, the Directional Index (DI-) continues to remain above the DI+, highlighting stronger seller presence compared to buyers.

According to Sudeep Shah, the immediate support for the Bank Nifty is placed in the 53,100–53,000 zone. Any sustainable move below this zone could result in the index extending its weakness toward the 52,800–52,700 zone (61.8 percent Fibonacci retracement of April rally - 23.6 percent Fibonacci retracement of correction from February high to April low), followed by 52,400 in the short term.