The Nifty 50 ended lower for the second consecutive session on Thursday, closing at the day's low for the second straight day. The index declined over 200 points from the day's high, the fall appeared sharper due to the CAS (Closing Auction Session). For the second consecutive session, the CAS mechanism led to a lower closing adjustment for the index.
Technical Setup Turns Cautious
With Thursday's decline, the Nifty registered its lowest closing level in the last six trading sessions The index witnessed higher volumes over the past 11 trading sessions, resulting in the formation of a distribution day. The Nifty also decisively closed below its 50-DMA.
Momentum indicators have turned less favourable, with the MACD line trading below the zero line. The 14-period daily RSI has slipped below 45 and is now approaching an important support zone, indicating fading strength. The counter-trend recovery that started from the August 19 low was unable to sustain momentum and stalled between the 38% and 50% retracement levels of the recent downswing.
Adding to the concerns, the index has now closed below its rising trendline support.
HDFC Bank and Reliance Lead the Decline
The decline on Thursday was largely driven by weakness in index heavyweights HDFC Bank and Reliance Industries. Together, both stocks dragged the Nifty lower by around 78 points.
Since August 3, when the CAS mechanism was introduced, the Nifty has declined 683 points from its recent high. The inability of the index to sustain short-term rebounds indicates that every recovery attempt is attracting selling pressure.
Levels to Watch Ahead
Going forward, the 24,000-24,040 zone is expected to act as an immediate support area for the Nifty. A weekly close below the 24,000 mark could weaken the structure further and trigger fresh selling pressure. In such a scenario, the index may move towards the 23,892-23,824 zone, which represents the gap area created on July 27.
On the upside, the 24,270-24,300 zone will act as the immediate resistance area. A sustained move above this zone could take the index towards the next hurdle at 24,385, where the 20-DMA is placed. For the trend to regain strength, the Nifty needs to reclaim and close above the 20-DMA near 24,385.
Stock to Watch: Uno Minda
Uno Minda, after gaining around 18% from its July 24 low, entered a consolidation phase that formed a triangular pattern. The stock recently broke out of this pattern after taking support, indicating renewed buying interest and offering a fresh trading opportunity.
The stock is currently trading above its key moving averages, including the 20, 50, 100 and 200-DMA. The 14-period RSI has seen a range shift in super bullish territory, supporting the positive technical setup.
With the breakout from a consolidation phase, the stock is likely to move towards Rs 1,310, followed by Rs 1,340 in the medium term. Traders can maintain a stop loss at Rs 1,248 to manage risk.
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