What will it take for Nifty to break out from prolonged range-bound trade since before Budget 2023-

What will it take for Nifty to break out from prolonged range-bound trade since before Budget 2023?

Benchmark share market index NSE Nifty 50 has been trading range-bound for several weeks with no clear directional momentum. In the first week of February, Nifty closed higher by a mere 0.01%. The lack of movement can be attributed to various factors, including concerns over rising inflation, various ongoing geo-political crises, and global market volatility. Additionally, investors are still analyzing the impact of the recent Union Budget 2023 on the market, hoping for measures that could boost economic growth and provide direction for the markets.

The NIFTY 50 index has been trading within a narrow range since January 27, 2023, for almost 12 consecutive trading sessions, according to Rameshver Dongre, Research Analyst – Equity Research at CapitalVia. The market was unable to close above or below the range of 17,970-17,570 on the daily Spot NIFTY50 chart. Although the support level of 17,570 was tested multiple times during the budget session, the market was unable to stay below that level and eventually closed within the given range. Dongre stated that a decisive break on either side of this range could lead to significant movement in the NIFTY 50 index.

Following the Union Budget, the Nifty 50 and Bank Nifty indices were trading in a narrow range, with both stuck within the highs and lows made on budget day. According to Santosh Meena, Head of Research at Swastika Investmart, the high options prices ahead of significant events, such as the budget, the FOMC meeting, and RBI policy, contributed to the lack of momentum.

The Adani saga added fuel to the implied volatility (IV), which made options more expensive. This created an opportunity for option writers, who were able to take maximum benefit from the falling IV by keeping the market within the range. Meena added that higher volatility results in expensive options, making it profitable for option writers to maintain the range and capitalize on the falling IV.

Technical analysis and further direction

According to Amit Trivedi, CMT, Technical Analyst – Institutional Equities, YES SECURITIES, the Nifty 50 index has been consistently defending the critical support level of 17,700 on a closing basis. However, he noted that there is a lack of required upward momentum, and he believed that a decisive breakthrough and the ability to sustain above 17,900 is crucial for the index to attempt a move towards the 18,100-18,150 zone.

Nifty has strong CALL OI accumulation at 17800 levels, said Milan Vaishnav, CMT, MSTA. This makes this level strong resistance for the index. Importantly the 20-WEEK MA and 100-DAY MA are between 17,900-17,950 levels. This makes the zone of 17,900-18,000 a very stiff resistance area for the markets. The view is clear; any meaningful up moves shall occur only after Nifty is able to move past 18,000 levels convincingly. The support, at present, exists near 17,480.

“The global markets are witnessing some correction after strong US job data, but we are not showing much weakness as we have already underperformed in the month of January. There is a good chance that Nifty may complete its unfinished business to test its 200-DMA, which is currently placed at 17330, before any meaningful rally,” said Rameshver Dongre of CapitalVia.