'On the weekly chart, the Nifty 50 index has formed a bearish candle and remains below all short-term moving averages.'
The relentless selling by foreign institutional investors (FIIs) across large, mid, and smallcaps has led to an over 10 per cent fall in the frontline benchmark indices of these three market segments from their peak levels hit earlier this year.
If technical charts are to be believed, there is more pain ahead for the markets as intermittent rallies/bounces are likely to get sold into for a downside target.
According to Chandan Taparia, head of equity derivatives and technical, wealth management at Motilal Oswal Financial Services (MOFSL), the Nifty 50 index breached its key support level at 23,333 earlier this week, signaling the possibility of further downside towards the 23,000 mark.
As persistent selling at higher levels continues, Taparia noted that a 'sell-on-bounce' trend is firmly in place at least for now.
"On the weekly chart, the Nifty 50 index has formed a bearish candle and remains below all short-term moving averages, indicating bears may extend their party," said Taparia.
"The current price action suggests that the index may remain under pressure until stability is found near key support levels," he added.
"Overall, as per price structure, till Nifty holds below 23,500 levels, a bounce could be sold into for a downside target of 23,000 levels," explained Taparia.
At the bourses, the NSE Nifty 50 index ended below the 200-DMA (daily moving average) for the fourth straight trading session earlier this week.
According to technical charts, a persistent close below this key moving average signals that the overall trend is weakening.
Conversely, at times of a false breakout, the index, or the underlying asset, tends to rebound sharply after one or two trading sessions, which has not been the case so far.
The weekly chart reveals that the overall bias for the Nifty is expected to remain the 'sell on rise' as long as the NSE benchmark stays below 25,500 levels, which is where the weekly super trend line stands.
In the interim, pull-back rallies on the Nifty are expected to counter strong resistance around 24,300 and 24,700 levels.
Going ahead, only a break and sustained trade above the weekly super trend line resistance shall indicate a reversal in the current market trend.
The Nifty currently seems to be seeking support around its 50-WMA (weekly moving average), which stands at 23,300.
The long-term Nifty chart hints that the index could drift towards 21,570 levels in the coming months.
For the Nifty, the focus is now squarely on 23,200-23,300 levels.
This area offers support from multiple indicators, including a key Fibonacci retracement from the general election-day lows, a rising trend line from the October 2023 trough, a falling channel currently in play, and the so-called daily Ichimoku cloud.
"We are also close to a time-reversal area which covers the early part of next week, with both daily and weekly momentum now deeply oversold." said Akshay Chinchalkar, head of research at Axis Securities.
Still, unless prices show bullish behaviour at price and time support, bears will have the upper hand," added Chinchalkar.
From a near-term perspective, the current market setup is weak but oversold. Hence, analysts at Kotak Securities believe the strong possibility of one quick pullback rally is not ruled out.
"For traders, 23,350 (Nifty)/77,150 (Sensex) and 23,400/77,300 would be the key levels. Above 23,400/77,300, we could see one quick pullback rally till 23,500-23,550/77,700-78,000." said Shrikant Chouhan, head of equity research at Kotak Securities.
"On the flip side, fresh selloff is possible only after dismissal 23,250/76,900," added Chouhan. "Below this, the selling pressure is likely to accelerate and the market could slip till 23,175-23,150/76,600-76,500 levels."
Feature Presentation: Ashish Narsale/Rediff.com
