Nifty Sees 24,800 As Litmus Test For Bulls — Here's Why

The saying “The markets take the stairs up and the elevator down” perfectly captures the current market situation. The Nifty 50 index extended its decline for the fifth consecutive day on Thursday, with the speed of the fall emphasising the truth behind this metaphor. The market is falling rapidly, breaching support levels one after another. In just five trading sessions, the index has retraced about 570 points of the previous 14-day rally of 1,044 points, accounting for more than 50% of the retracement in less than 40% of the time. This sharp decline also signals the failure of a double bottom breakout.

From a technical perspective, the index has fallen below the 20-DMA and registered a distribution day, as Thursday’s decline was accompanied by higher volume over the past four days. Moreover, it has continued its pattern of lower highs and lower lows, closing near the day's low, right at the 50-DMA. In the previous write-up, we discussed the bearish implications of the hanging man reversal pattern, which suggested a higher probability of the correction continuing for another day or two for the pattern’s effect to fully materialise. As this pattern reaches its full potential, the index is approaching a key support level, defined by the 61.8% Fibonacci retracement of the upswing from 24,404.70 to 25,448.95, which stands around 24,800. This 24,800 level is crucial for the bulls—if it holds, it could provide a potential reversal point.

The 14-period daily RSI has dropped below 50 and breached the ascending channel support. The daily MACD has also given a bearish crossover, and the -DMI has crossed above the +DMI line, indicating further downside potential.

Overall, all eyes are on the crucial support level of 24,800 for a potential pullback rally. However, this pullback may encounter strong resistance around the 25,000-25,040 zone.