Nifty halts losing streak; Is a short-term reversal possible?

After ending lower for three consecutive sessions, the Nifty 50 managed to bounce back on Thursday, gaining support from buying interest during the closing auction session (CAS). The index closed 46.30 points higher at 23,477.80. However, the recovery lacked strength for most of the session, as the index remained volatile and failed to hold higher levels before witnessing a late surge towards the close.

Hammer Formation Signals Buying Interest at Lower Levels

On the daily chart, the index formed a green candle with a long lower shadow, suggesting that buyers stepped in at lower levels. Despite this recovery, the index continues to maintain a pattern of lower highs and lower lows on the daily timeframe, indicating that the short-term trend remains under pressure.

Oversold Conditions Offer Scope for Short-Term Bounce

From a technical standpoint, the overall structure remains unchanged. However, the formation of a hammer-like candle after a sharp decline, coupled with the index moving into oversold territory, indicates a possibility of a short-term rebound.

A hammer pattern after a sustained fall is often considered an early sign of a potential reversal. However, the pattern requires confirmation through subsequent price movement before indicating a meaningful trend reversal.

Nifty Needs to Cross 23,495 for Recovery Confirmation

For the recovery to gain momentum, the Nifty needs to sustain above the immediate hurdle of 23,495. The next resistance zone lies between 23,572 and 23,623, which marks the downside gap formed on September 9.

A decisive move above this gap zone could improve sentiment and lead to further short covering. On the higher side, the next key resistance level is placed near the 8-day EMA, currently positioned around 23,720.

Moving Averages Continue to Indicate Caution

Despite Thursday’s recovery, the index continues to trade below its short-term, medium-term and long-term moving averages, keeping the overall technical setup weak.

At the same time, the combination of a hammer formation after a steep decline and the 14-period RSI staying below 30, reflecting oversold conditions, suggests that a short-term relief rally cannot be ruled out. Market participants will closely track whether the index manages to hold above key resistance levels to confirm a sustainable recovery.

Stock to Watch: JSW Infrastructure

JSW Infrastructure witnessed a strong rally of nearly 15% from its July low to the August high. However, after the upmove, the stock entered a counter-trend correction phase, during which the decline halted near the 61.8% Fibonacci retracement level. The subsequent consolidation has taken the shape of a triangular pattern.

The stock is currently on the verge of a breakout from this pattern. A sustained move above the ₹345 level would be positive and could trigger further upside towards ₹358–369. Traders can maintain a stop loss at ₹334.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.