Nifty tests support zone between corrective market phases; A cautious week ahead

Markets traded under constant pressure during the week and ended on a distinctly negative note. After initially attempting a modest recovery, the Nifty faced a sustained sell-off at the highs and moved lower as the week progressed. The index oscillated within a defined range of 25,771.45 on the upside and 25,141.30 on the downside. Volatility eased, with the India VIX down 4.60% to 13.70 on a weekly basis. Nifty closed the week with a net loss of 392.60 points (-1.54%).

The broader technical framework remains corrective in a major uptrend. On the weekly chart, the Nifty continues to remain above its 50-week moving average (25,047), while staying above the 100-week (24,422) and 200-week (21,571) averages, maintaining a long-term bullish structure.

However, the index is trading below the 20-week moving average (25,756) and near the lower Bollinger Band (25,065), indicating short-term weakness. Price action over the past few weeks has resembled a mild bearish consolidation within a broader bullish structure, suggesting a loss of upside momentum. A sustained move above 25,800 would be needed to negate the current short-term weakness and open the door for a directional correction. On the downside, a critical breach of the 25,000–24,950 zone could trigger additional corrective pressure towards lower support.

With Tuesday, March 03, a trading holiday due to Holi, the truncated week may begin cautiously amid the prevailing softness. Immediate resistance levels are seen at 25,350 and 25,550. Key supports are placed at 25,050 and 24,700.

Weekly RSI is 46.27; It remains neutral but tilted lower and shows no apparent bullish or bearish divergence against the price. Weekly MACD remains below its signal line but in positive territory. The index formed a relatively broad bearish candle on the weekly chart, reflecting a distribution at higher levels.

From a pattern perspective, Nifty seems to be going through a time-wise consolidation after a long period of upswing. The index is testing the confluence of the lower Bollinger Band and the 50-week moving average, a zone that may offer intermediate support. Failure to hold this band could lead to a deeper retracement towards the 100-week average. The broad high-high-high-low structure remains intact on the long-term chart, but the near-term price behavior suggests a break with a corrective bias but no structural damage on the technical front for now.

In the upcoming truncated week, a cautious and selective approach will be prudent. Traders should avoid aggressive fresh longs until the index reclaims the level above 25,800 with strength. At the same time, any breach of 25,000 must be closely monitored for follow-through vulnerability. It is essential to protect existing gains, maintain tight stop-losses and focus on stock-specific opportunities with relative strength. The most effective approach to the week is to be measured, nimble and responsive to key levels rather than anticipating premature directional moves.

In our look at Relative Rotation Graphs®, we compared various sectors against the CNX500 (NIFTY 500 Index), which represents more than 95% of the free-float market cap of all listed stocks.

The relative rotation graphs (RRG) show that the Nifty Energy Index and Infrastructure Index have rotated within the leading quartile. Along with this, Nifty Financial Services, PSE, Nifty Bank, PSU Bank and Nifty Metal Index are also within the leading quartile. The group is expected to collectively outperform the broader Nifty 500 index.

The Nifty services sector index has moved into the weaker quadrant. Midcap 100, auto and IT indices are also in this quadrant. These groups can see individual stock-specific moves; However, relative performance may slow down.

While the Nifty Realty index continued to bear down within the lagging quadrant, the FMCG index showed a slight improvement in its relative momentum against the broader market, remaining within the lagging quadrant.

The Nifty Pharma index is back inside the improving quadrant. The Nifty Media Index is also in the improving quadrant.

Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above charts, they show relative performance against the NIFTY500 index (broader markets) and should not be used directly as buy or sell signals.

(The author is Milan Vaishnav CMT, MSTA Consulting Technical Analyst)

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)