The Nifty 50 has fallen further below its 200-day moving average (200-DMA), as rising US bond yields and elevated crude oil prices weigh on markets, suggesting that the recent weakness is no longer just a routine correction and could be turning bearish, analysts said.
The 200-DMA is a widely tracked indicator of the market's long-term trend, with a break below it often seen as a sign of weakening investor sentiment.
A DMA is a technical indicator that calculates the average closing price of a security over a specified number of trading days to smooth out short-term price fluctuations and show the underlying market trend. A 200-DMA calculates the average closing price over the past 200 trading days and is widely used to identify the long-term trend.
The 200 DMA is now likely to act as an important resistance zone, and until the Nifty decisively reclaims and sustains above this level, rallies are likely to face selling pressure, said Hitesh Tailor, technical research analyst at Choice Broking.
A short-term relief rally cannot be ruled out, but such a rebound would not necessarily signal a trend reversal unless the index moves back above the 200 DMA, Tailor added.
Much of the weakness in the markets can be attributed to a combination of rising US bond yields, elevated crude oil prices, and renewed concerns over inflation in India, analysts said.
A sharp rise in the US government bond yields has made US debt more attractive to investors, prompting a shift towards safer fixed-income assets. The yield on the 10-year US Treasury rose from 4.7% to 5%, between 17 August and 15 September, adding to pressure on risk assets.
Even the 200-day EMA (exponential moving average) shows similar signs. Nifty has been trading below its 200-day EMA for the past 22 trading sessions, starting from August 14. Over these 22 trading sessions, the index has gradually moved further below its long-term moving average and is now down 5.12% from the 200-day EMA.
The 200-day EMA tracks the index’s average price over the past 200 trading days, giving more weight to recent prices.
Meanwhile, crude oil prices climbed to $104.45 per barrel as of 9.20 am on Wednesday, raising concerns over higher input costs and the potential impact on inflation and corporate margins.
Domestically, investors are also keeping a close watch on inflation. India’s retail inflation accelerated to a 20-month high of 4.82% in August, raising concerns that persistent price pressures could prompt the Reserve Bank of India to consider raising interest rates to curb inflation.