The relentless selling pressure from foreign institutional investors (FIIs) has caused significant declines across India’s large, mid, and small-cap indices, with all three segments seeing over a 10% drop from their peak levels earlier this year. According to technical analysis, the near-term outlook for the market remains bearish, with intermittent rallies expected to face selling pressure.
Key levels Breached, more downside likely
Chandan Taparia, head of equity derivatives and technical wealth management at Motilal Oswal Financial Services (MOFSL), has highlighted the Nifty 50 index breaching a critical support level at 23,333 earlier this week. The breakdown signals a potential move towards 23,000, a level widely seen as the next key support.
“The Nifty 50 index has formed a bearish candle on the weekly chart and is trading below all short-term moving averages. This indicates that bearish momentum could persist. Unless the Nifty reclaims the 23,500 level, rallies are likely to face selling pressure, with a downside target of 23,000,” Taparia stated.
Bearish momentum below key moving averages
The NSE Nifty 50 has closed below its 200-day moving average (DMA) for four consecutive sessions, further reinforcing the weakening market trend. Typically, persistent trading below this critical level signals bearish sentiment.
Conversely, a false breakout, where the index rebounds sharply after falling below the 200-DMA, has not been observed, underscoring the strength of the bearish grip on the market.
Weekly chart signals more pain
On the weekly chart, the Nifty’s supertrend resistance is pegged at 25,500. Analysts believe the index will remain under pressure as long as it trades below this level. Pullback rallies are expected to encounter strong resistance at 24,300 and 24,700 levels.
Only a sustained move above 25,500 would signal a potential reversal in the current bearish trend, experts say. Meanwhile, the index is seeking support around its 50-week moving average (WMA) at 23,300. If this level fails to hold, the long-term chart suggests the Nifty could drift as low as 21,570 in the coming months.
Support and resistance indicators
Several technical indicators highlight the importance of the 23,200–23,300 zone. These include:
- Fibonacci Retracement: Key support derived from the election-day lows.
- Trendlines: Rising support from October 2023 troughs.
- Ichimoku Cloud: Daily cloud levels provide additional support.
Despite deeply oversold daily and weekly momentum indicators, analysts warn that bullish behaviour must be observed at these levels before the market can attempt a reversal. “We are nearing a time-reversal area early next week. Still, without clear bullish signals, bears retain the upper hand,” said Akshay Chinchalkar, head of research at Axis Securities.
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Pullback rally or fresh sell-off?
From a near-term perspective, Kotak Securities analysts suggest that the current market setup is weak but oversold, leaving room for a possible quick pullback rally.
“For traders, 23,350 (Nifty) and 77,150 (Sensex) are key levels to watch. A move above 23,400/77,300 could trigger a rally towards 23,500–23,550 / 77,700–78,000. Conversely, fresh selling pressure could emerge if the index falls below 23,250/76,900, accelerating declines to 23,175–23,150 / 76,600–76,500,” noted Shrikant Chouhan, head of equity research at Kotak Securities.
Looking ahead
While the markets appear weak, a short-term bounce cannot be ruled out due to oversold conditions. However, sustained selling by FIIs and bearish technical patterns suggest that investors should approach any rally with caution. Until key resistance levels are reclaimed, the broader market remains firmly in a sell-on-rise mode.
For now, traders and investors are advised to keep an eye on the critical support zones and monitor momentum indicators for signs of potential stabilisation or further weakness.
