D-Street Week Ahead: Bearish outlook deepens as Nifty slips below key support

Markets traded with a distinctly bearish bias during the week, saw continued declines after an initial attempt to stabilize, and eventually ended marginally in the red. The Nifty settled near the lower end of the oscillated range in the defined range of 931 points. Volatility remained firm; The India VIX rose 0.74% to 22.81, reflecting growing panic in the market. The benchmark index ended the week with a modest loss of 36.60 points (-0.16%).

With the Nifty decisively breaching its intermediate support zone and slipping below key moving averages, the broader technical framework has deteriorated further. The index is now trading below its 50-week and 100-week moving averages, indicating a bearish trend. As long as the Nifty stays below the 23,450-23,600 zone, it is likely to remain under pressure. Any pullback to this region could counter supply. Conversely, a sustained move above this band would be necessary to negate an immediate bearish setup and trigger a short-covering move.

Given the current setup and a truncated trading week due to the Ram Navami holiday on Thursday, markets are likely to see a cautious and potentially gap-driven start. Key resistance levels are placed at 23,450 and 23,650, while support comes at 22,900 and 22,650.

The weekly RSI remains at 28.84, slipping into oversold territory, and remains aligned with the price trend without showing any meaningful deviation, indicating continued weakness. It formed a fresh 14-period low. MACD remains bearish and below its signal line, with a widening negative histogram, consolidating ongoing downside momentum.

From a pattern perspective, the Nifty has confirmed a bearish structure by staying below two of its three major averages, which usually have bearish implications. The index also closed below its lower Bollinger Band, indicating an overstretched position in the near term, but not necessarily an immediate reversal. The 200-week moving average near 21,680 now emerges as a crucial long-term support zone if the decline extends further. However, a temporary pullback within the band cannot be ruled out.

For the coming week, a cautious and defensive approach is strongly recommended. While oversold readings may lead to intermittent pullbacks, they are likely to face resistance at higher levels. Fresh aggressive buying should be avoided until clear signs of stability appear. Traders should focus on protecting capital, maintaining light positions and adopting a highly stock-specific approach. Any rebound should be used to reduce exposure rather than starting fresh longs.

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 graph (RRG) shows that the Nifty energy sector is firmly positioned within the leading quartile. Along with this, PSE, Pharma and Infrastructure indices also move firmly within this quadrant. These groups may outperform the broader markets. Metal, PSU Bank, BankNifty and Financial Services Index are also within this quadrant; However, they are found to give up their relative momentum. They may not be dropping much, but their pace of outperformance is breathtaking.

The Nifty Auto and Midcap 100 indices continue to remain in the weaker quadrant. Their relative performance may also take a back seat while individual stock specific shows cannot be ruled out.

The Nifty services sector index has moved into the lagging quadrant. Realty and IT groups also pale within this quadrant; They may underperform the broader markets.

The Nifty FMCG index has moved into the improving quadrant. Media index is also within this quadrant. These two groups may see relative performance improvement going forward from here.

Important Note: The RRG™ chart shows 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.