Nifty’s technical setup weakens; 100-DMA key to recovery

The Nifty 50 extended its decline into a fourth straight week and ended below the previous week’s low. Trading activity also picked up, with the index recording its highest volume in five weeks. After a period of relatively muted volumes, the rise in activity alongside the decline suggests that distribution intensified during the week.

The selling was particularly strong at the start of the week, when the index fell on heavy volume. From its recent swing high, the Nifty has now declined 3.54%.

Volumes have remained lower on most days since the introduction of CAS, with August 31 being the notable exception. The index has also failed to respond positively to SEBI’s announcement of a review. Stronger-than-estimated GDP numbers provided little support to sentiment either.

The weakness has been persistent rather than limited to a few sessions. Since August 3, the Nifty has closed lower on most trading days.

Market Structure Shows Signs of Weakness

The pace of the present correction is notably different from the preceding upmove. From the July 24 low, the Nifty had gained 1,168 points, or 4.95%, in only six to seven trading sessions before the correction began.

The current downswing has now lasted 23 trading days and has taken almost four times as long to retrace 80% of the earlier advance. The extended duration of the decline, compared with the speed of the previous rise, points to a meaningful loss of momentum.

The overall structure has weakened as the index has moved below its major moving averages. On the weekly chart, the Nifty has closed below both the 20-week moving average and the 30-week weighted moving average. A close below these averages adds to the longer-term bearish concerns.

Short-Term Indicators Continue to Point Lower

The weakness is not confined to the weekly chart. The Nifty has also slipped below the 8-EMA, 20-DMA and 50-DMA. It is currently 1.27% below the 50-DMA.

The 50-DMA has flattened, indicating that the intermediate trend has lost its upward bias. The index has also broken below the rising trendline drawn from the April low, adding another sign of deterioration.

Price action around the Anchored VWAPs is also not encouraging. The Nifty has been unable to sustain above the Anchored VWAP from the April low and has encountered resistance near the VWAP anchored at the September 2024 high. Together, these levels indicate continued supply on the upside.

100-DMA Becomes the Key Level for Recovery

The Nifty has broken below the 23,900–24,000 support zone and closed below the 100-DMA. Intraday recoveries have also failed to hold at higher levels, while participation remains low.

The immediate technical picture is unlikely to improve materially unless the index can reclaim and sustain above the 100-DMA. The 100-DMA currently stands at 24,028. A sustained move above this level would be important for the Nifty to regain its earlier trading range and challenge the recent weakness.

Until that happens, rallies are likely to remain vulnerable to selling pressure.

On the downside, 23,780–23,800 is the next important zone to watch. A decisive break below this range would confirm a fresh breakdown and raise the possibility of the corrective move extending towards 23,600.

Stock to Watch: Wockhardt

The stock has witnessed a breakout from a triangular pattern on the weekly time frame. It is currently trading above all the key short-, medium- and long-term moving averages on the daily time frame. The 14-period RSI is also in bullish territory.

Overall, the technical structure remains positive. Sustaining above Rs. 2,100 would be a positive sign and could open the way for an upside move towards Rs. 2,220–2,300. The stop-loss can be maintained at Rs. 1,900.

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.