The Indian stock markets have experienced a significant decline over the past five sessions, ending the week with a substantial negative momentum. The Nifty index has been particularly under pressure, violating crucial support levels and setting the stage for a continued bearish outlook. The market saw increased volatility, with the India Vix surging 10.16% week-on-week, reflecting the heightened market uncertainty. The Nifty ended the week with a net loss of 573.25 points (-2.39%).
Nifty Technical Breakdown: A Bearish Turn
From a technical standpoint, the week proved to be critical for the Nifty. The index opened the week by breaking below the 200-day moving average (DMA) at 23940 and closed significantly under this key level. Additionally, the breach of the 50-week moving average (MA), currently at 23659, has further dampened the market’s sentiment. The violation of these critical levels signals the possibility of prolonged weakness unless the Nifty manages to recover and surpass these resistance zones.
Key Resistance and Support Levels
Looking ahead to the start of the week, the Nifty is expected to begin on a soft note, with the resistance levels likely to form at 23650 and 23880. Support levels are expected at 23300 and 23050. The weekly Relative Strength Index (RSI) stands at 43.53, indicating bearish sentiment, as it has marked a new 14-period low and shows divergence against the price. Meanwhile, the MACD remains bearish, staying below the signal line, with the widening histogram suggesting accelerated momentum on the downside.
Sectoral Insights: Which Indices Are Leading or Lagging?
In the world of sectoral rotation, Relative Rotation Graphs (RRG) offer valuable insights into which sectors are outperforming or underperforming the broader market. Among the leading sectors, Nifty Bank, Services Sector, Nifty Financial Services, and Nifty IT stand out, with the Nifty IT index seeing some relative weakening despite being in the leading quadrant. Notably, the Nifty Midcap 100 has entered the leading quadrant, suggesting a potential outperformance relative to the broader market.
On the flip side, the Nifty Pharma Index is inside the weakening quadrant, indicating relative underperformance. The Nifty Metal Index has moved into the lagging quadrant, joining sectors such as Media, PSE, Energy, and Commodities, which are also likely to underperform the broader market.
In contrast, the Nifty Realty, Auto, FMCG, and Consumption Indices are in the lagging quadrant but are showing signs of improving relative momentum. This is a positive development, signaling potential recovery in these sectors if the broader market stabilizes.
What to Expect for the Coming Week?
As the Nifty faces a crucial phase of mean reversion, it remains vulnerable to continued weakness unless it can regain key technical levels. The resistance zone between 23650-24000 is expected to act as a strong hurdle. Investors and traders are advised to reduce leveraged positions and adopt a cautious stance, particularly in sectors with weak relative strength. Staying selective and focusing on stocks with improving relative strength could provide a buffer against market volatility.
With the market’s technical outlook leaning bearish, it’s essential to keep a close eye on the evolving sectoral dynamics and key levels for any signs of potential reversals or further declines.