Nifty, Bank Index form death cross; bear grip may tighten

Mumbai: A technical pattern on the Nifty and Bank Nifty is pointing to further weakness in both the indices. The benchmarks have formed the so-called Death Cross pattern for the first time since March 2020. This happens when a short-term average drops below a long-term moving average. The most closely watched averages for this pattern are the 50-day moving average and the 200-day moving average.

"The Bank Nifty could fall to 34,500-35,000 if it breaks the support of 36,000 and the Nifty could fall to 16,500 or lower if it breaches 16,800 on the downside," said Rajesh Palviya, head-technicals and derivatives at Axis Securities.

Currently, Bank Nifty's 50-day moving average of 36,618.96 is below its 200-DMA of 36,871.59. Similarly, Nifty's 50-DMA of 17,140.92 is below its 200-DMA of 17,170.41. The Nifty closed at 16,958.65 on Tuesday and the Bank Nifty closed at 36,341.60.


"In technical parlance, the death cross is considered a bearish signal. The range of 16,600-16,850 becomes crucial as breach of these levels acted as precursors to a major selloff in the previous leg of correction which culminated last month," said Sriram Velayudhan, vice president-alternative research, IIFL.

Overseas investors are selling Indian blue-chips after some of them reported weaker-than-expected results for the March quarter. Added to that, geopolitical tensions surrounding Ukraine, inflationary pressures and rising interest rate environment is spurring overseas investors to offload emerging market assets.

Analysts said this is the second time in recent months that the Nifty has fallen below the 200-day moving average, which indicates long-term trend.

Analysts said the Death Cross formation now is not comparable to the one in March 2020, when the Nifty fell from about 11,700 to an over four-year low of 7,500 in a matter of days due to the onset and global spread of the coronavirus. This time, the correction is unlikely to be sharp and swift, they said.

"If the market doesn't recover in the next 10-15 sessions, it may go for a long price and time correction," said Palviya. " That time, it took the market five months to see a positive crossover in August 2020."