Nifty Bank Weekly Outlook: Failed Breakout Weakens Structure, Sell-on-Rallies Bias Builds

Market Snapshot

The Nifty Bank index went through a volatile and corrective week, registering four consecutive negative sessions and surrendering a large portion of the previous week’s gains. The decline was marked by the formation of a strong bearish candle, reflecting rising nervousness amid resurfacing global uncertainties. On the weekly chart, the emergence of a Dark Cloud Cover pattern near record highs has raised concerns about the sustainability of the broader uptrend.

Risk-off sentiment was evident across the banking space, with heavyweight private and PSU banks ending the week in the red. The index witnessed a classic false breakout, trapping late buyers before slipping back into its earlier consolidation range. This failed breakout has visibly weakened the broader price structure.

Friday’s session remained firmly under bearish control, with every minor intraday recovery facing aggressive selling pressure. Persistent supply resulted in a decisive breach of key support levels, underlining clear seller dominance. Nifty Bank declined 434.95 points to close at 59,251.55, marking its steepest weekly fall in recent weeks and signalling a loss of bullish momentum with early signs of developing structural weakness.

Technical Analysis: Failed Breakout Signals Distribution

From a technical standpoint, the index has closed below the previous day’s high for five consecutive sessions, highlighting sustained distribution. The failure to sustain above the crucial 59,700–60,000 breakout zone has significantly heightened downside risks and increased the probability of continued corrective pressure.

The bearish Dark Cloud Cover formation on the weekly chart at all-time highs places Nifty Bank near a critical inflection point around the 59,000 level. Any follow-through selling from this region could decisively tilt the medium-term trend toward bearish territory. Adding to the negative bias, the index is trading below both its 20-day and 50-day exponential moving averages, which are now expected to act as immediate overhead resistance—reinforcing the view that rallies are being sold into.

The 59,700–60,000 zone, which earlier functioned as a strong demand region, has now transformed into a stiff resistance band. As long as the index remains below this range, the risk of further downside persists, with sellers retaining control of key levels.

Momentum indicators also reflect weakening strength. The Relative Strength Index (RSI) has slipped below the 50 mark, indicating fading bullish momentum. On the downside, 59,000 stands out as immediate support. A decisive break below this level could accelerate the corrective move toward lower retracement zones. A sustainable recovery would require a clear and sustained reclaim of the 59,700–60,000 zone to restore bullish confidence.

Derivatives Snapshot: Upside Capped by Call Writing

The derivatives setup aligns with the cautious-to-bearish tone visible in the cash market. Call writers have aggressively added fresh positions at at-the-money and nearby strikes, effectively capping near-term upside potential. In contrast, put writers have reduced exposure and shifted positions to lower strikes, signalling expectations of shallow pullbacks rather than a meaningful rebound.

A notable open interest addition of nearly 9.58 lakh contracts at the 59,000 put strike establishes this level as an important near-term support. On the upside, the build-up of around 16.05 lakh call contracts at the 59,500 strike strengthens this level as a key resistance ceiling. The Put-Call Ratio (PCR) continues to hover in the cautious zone near 0.85, reflecting elevated risk aversion and the dominance of call writing activity in the current series.

Market Outlook: Sell-on-Rallies Strategy Favoured

The broader trend for Nifty Bank has turned distinctly cautious following the failed breakout and the formation of a bearish reversal pattern at record highs. Slipping below key short- and medium-term moving averages has rendered the overall structure fragile, while the erosion of the previous week’s gains has clearly dented market confidence.

The formation of lower highs, combined with the swift selling of intraday recoveries, highlights persistent supply pressure at elevated levels. With the index closing below critical psychological supports, downside risks remain elevated. The 59,000 zone now assumes significant importance; a sustained breach below this level could open the door for a deeper correction toward the 58,600 region.

On the upside, any meaningful revival in bullish positioning is likely only if the index reclaims and sustains above the 60,000 mark. Until such confirmation emerges, a sell-on-rallies strategy is expected to remain the preferred approach in the near term.