The NSE Nifty 50 index recently tested its 200-Daily Moving Average (DMA) at 23,530 for the first time since April 2023. This level is significant for investors and traders alike, as the 200-DMA is a widely acknowledged measure for gauging an index’s or stock’s long-term trend. An index trading above this level generally signals a bullish trend, while dropping below it often points to a bearish trend.
Historically, the Nifty 50 index has demonstrated strong performance after clearing the 200-DMA. For instance, after breaking above the 200-DMA at 17,335, it rallied significantly, surging 51.6% to reach an all-time high of 26,277 in September 2024. However, currently, Nifty has pulled back approximately 10.5% from its peak and is once again flirting with the 200-DMA at 23,530. This level now serves as a critical support point. With nearly 20 out of 50 stocks in the Nifty 50 trading below their 200-DMA, and around 240 of the Nifty 500 stocks below theirs, the broader market has experienced a notable correction. This begs the question: will the Nifty’s correction pause at these levels, or will it deepen?
Current Levels and Potential Downside for Nifty
As of now, Nifty stands at 23,550. The downside risk from this level is calculated at roughly 13.8%, should it fail to maintain support at 23,530. Key levels to monitor include immediate support points at 25,530 and 25,250, with further support around 22,900. Resistance levels to watch are 23,600, 23,700, 24,300, and 24,665.
Significance of the 50-Week Moving Average (WMA)
Apart from the 200-DMA support, Nifty also has a critical support level at the 50-Weekly Moving Average (WMA), situated at 23,250. The index has stayed above this level since March 2023. A weekly close above 23,600 could signal a short-term bounce, according to the weekly chart. Presently, Nifty is trading below the lower Bollinger Band on the weekly chart, a pattern often considered bearish. If Nifty fails to hold its weekly support at the 50-WMA, there is potential for further declines.
Key Retracement Levels to Watch
Should Nifty 50 break below the 50-WMA support, technical analysis indicates a probable decline to the 38.2% Fibonacci retracement level, situated at around 22,920. This level represents a retracement of Nifty’s earlier rally and is considered a critical support level. A further breakdown could see Nifty testing the 61.8% retracement, or “golden ratio,” which stands close to 20,850. This is also near a crucial unfilled gap on the daily chart between 20,291 and 20,508, created during the first week of December 2023. Historically, Nifty has a track record of filling any unfilled gaps on its daily charts, suggesting that this gap could serve as a long-term support level if current levels do not hold.
Near-Term Resistance and Short-Term Trends
For a short-term rally, Nifty needs to break and sustain above 23,700, which would signal potential momentum toward its 20-DMA, currently at 24,300. The 23,600 resistance level is another crucial threshold; a close above this level could bolster hopes for a recovery. However, as long as Nifty remains below 24,665, the overall trend appears likely to remain subdued. This means that while the index may see brief relief rallies, sustained upward momentum may be difficult without surpassing this key resistance.
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Market Sentiment and Potential Outcomes
The Nifty 50’s movement around the 200-DMA at 23,530 could determine the medium-term sentiment for the Indian market. A decisive move below this level could prompt further selling pressure, particularly from technical traders and institutional investors watching these key support levels. Conversely, if the index manages to hold its ground and close above the weekly resistance levels, there may be room for a stabilising trend, especially if supported by positive economic or corporate data.
The current positioning of Nifty below the lower end of the Bollinger Bands on the weekly scale is also concerning, as it suggests an oversold condition. Such oversold conditions occasionally lead to brief recovery rallies; however, whether these rallies can turn into sustainable upward trends remains to be seen.
In summary, the Nifty 50 is at a crucial juncture, with the 200-DMA and 50-WMA acting as critical support points. A breach of these levels could see the index head toward 22,920 or even 20,850 in the event of deeper market correction. For now, a sustained move above 23,600–23,700 will be essential for any near-term recovery hopes. Until Nifty clears 24,665, cautious sentiment is likely to dominate the market. Investors are advised to stay vigilant and monitor these key levels closely, as Nifty’s performance around them will likely set the tone for the broader Indian equity market in the near future.
