On Wednesday, the Nifty 50 opened almost flat, but selling pressure emerged right from the start and dragged the index sharply lower during the first half of the session. Sentiment improved later in the day, with the index staging a strong recovery from the lower levels.
The rebound accelerated during the closing CAS session, when the Nifty gained nearly 74 points and recovered a large part of its intraday losses. The index eventually settled at 24,435.95, down 35.75 points or 0.15%.
The Nifty Bank, however, showed relative strength and outperformed the benchmark by gaining 0.77%.
Hammer-Like Candle Forms Near Key Support
Wednesday's price action resulted in the formation of a small bearish candle with a long lower shadow, resembling a hammer-type candlestick pattern.
During the session, the Nifty slipped below its 20-DMA as well as the 38.2% retracement level. The index also briefly moved below the crucial 24,300 mark before recovering and closing back above it.
The recovery from lower levels suggests that buyers are still active around the key support area. However, the next few sessions would be important in determining whether Wednesday's rebound develops into a meaningful reversal.
Short Build-Up Keeps Pressure Intact
Fresh short positions were created during the session, with the decline in price accompanied by a rise in open interest. Overall market breadth remained negative, while breadth within the Nifty 50 also stayed weak.
On the daily chart, the index has formed a sequence of lower highs and lower lows over the past few sessions. However, this price action continues to remain within the flag pattern.
During a counter-trend pullback, prices generally tend to retrace around 38.2% to 50% of the preceding up-move before the broader trend attempts to resume. Following the recent rally, a retracement of around 38.2% to 50% of the previous up-move was therefore possible, and the Nifty has retraced and found support from this retracement zone.
This makes the next few trading sessions crucial. The price action from here should provide greater clarity on whether the current decline is merely a counter-trend retracement after the recent rally or the beginning of an extended correction.
24,220-24,306 Becomes the Key Support Zone
The lower boundary of the flag pattern and the 20-DMA are placed in the 24,220-24,306 zone, making this the most important support area to monitor.
As long as the Nifty holds above this zone, the ongoing decline can be viewed as a retracement following the recent rally.
A decisive break below 24,220, however, could weaken the structure and open the possibility of an extended correction towards the July 29 gap zone placed between 24,041 and 24,137.
Bulls Need to Reclaim 24,520
On the upside, the Nifty needs to sustain and close above 24,520 to regain momentum.
A convincing move above this level would strengthen the case for a hammer reversal from an important retracement zone and could bring buyers back into control. In that scenario, the index may once again move towards the recent swing-high area near 24,700.
Going forward, the 24,220-24,306 zone remains the key support area, while 24,520 is the immediate hurdle for the bulls. Holding the support zone would keep the current decline within the scope of a normal retracement, while a sustained move above 24,520 could revive bullish momentum and bring 24,700 back into focus.
Stock to Watch: KEI Industries
KEI Industries has registered a breakout from an eight-week cup pattern and closed at a fresh all-time high, strengthening the bullish setup. The stock's Relative Strength line has also moved to a new high, indicating outperformance against the broader market.
The trend remains firmly positive across time frames, with both short- and long-term moving averages rising. The moving average ribbon continues to point higher, while expanding Bollinger Bands suggest an increase in momentum following the breakout.
Momentum indicators are also supporting the move. The weekly MACD has generated a fresh bullish crossover, while the RSI remains in the bullish zone across multiple time frames. The Stochastic RSI and KST are also positive, and the Elder Impulse System has printed a strong bullish bar.
Overall, the technical structure remains constructive after the breakout. A sustained move above Rs 5,710 could keep the momentum intact and push the stock towards Rs 5,900. Traders may keep a stop loss at Rs 5,560. If the stock moves decisively above Rs 5,900, the next upside level to watch is Rs 6,050.
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