Useful tests support the zone during the corrective market phase; cautious week ahead

Markets were under sustained pressure all week, ending on a decidedly negative note. After attempting a modest recovery early, the Nifty faced sustained selling at higher levels and fell as the week progressed. The index has been fluctuating within a defined range of 25,771.45 on the higher side and 25,141.30 on the lower side. Volatility eased, with India’s VIX down 4.60% weekly to 13.70. The Nifty ended the week with a net loss of 392.60 points (-1.54%). The broader technical structure remains corrective within a larger uptrend. On the weekly chart, Nifty continues to hover just above the 50-week moving average (25,047) while remaining well above the 100-week (24,422) and 200-week (21,571) averages, maintaining its long-term bullish structure.

However, the index is trading below the 20-week average (25.756) and near the lower Bollinger Band (25.065), indicating near-term weakness. The price action in recent weeks appears to be a mild bearish consolidation within a broader bullish structure, indicating a loss of upside momentum. A sustained move above 25,800 would be necessary to negate the current short-term weakness and open the door for a targeted upward move. On the other hand, a decisive violation of the 25,000–24,950 zone could lead to increasing corrective pressure towards lower supports. Since Tuesday, March 3 is a trading holiday due to Holi, the shortened week can start cautiously amid the prevailing mildness. Immediate resistance levels are seen at 25,350 and 25,550. Key supports are placed at 25,050 and 24,700.

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

From a pattern perspective, the Nifty appears to be undergoing a consolidation over time after a prolonged upward move. The index tests the confluence of the lower Bollinger Band and the 50-week moving average, a zone that could provide interim support. Failure to hold this band could lead to a deeper retracement towards the 100-week average. The broader higher-top-higher-bottom structure remains intact on the long-term chart, but the short-term price behavior indicates a pause with corrective action, but no structural damage on the technical front at the moment.

In the coming shortened week, a cautious and selective approach would be wise. Traders should avoid aggressive new long positions until the index reaches more powerful levels above 25,800. At the same time, each breach of 25,000 must be closely monitored for follow-on weakness. Protecting existing profits, maintaining tight stop-losses and focusing on stock-specific opportunities with relative strength will be key. The most effective approach for this week would be to remain moderate, alert and react at key levels, rather than prematurely anticipating a directional move.

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

Relative Rotation Charts (RRG) show that the Nifty Energy Index and the Infrastructure Index have rolled within the leading quadrant. Besides, Nifty Financial Services, PSE, Nifty Bank, PSU Bank and Nifty Metal Index are also in the leading quadrant. This group is expected to collectively outperform the broader Nifty 500 index.

The Nifty Services Sector Index has entered the weakening quadrant. The Midcap 100, Auto and IT indices are also in this quadrant. These groups can see individual stock-specific movements; however, relative performance may slow down. While the Nifty Realty Index continues to languish within the lagging quadrant, the FMCG Index has shown a mild improvement in its relative momentum against the broader market while remaining within the lagging quadrant.

The Nifty Pharma Index has returned to 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 chart above, they show relative performance against the NIFTY500 Index (broader markets) and should not be used directly as buy or sell signals.

(The author Milan Vaishnav CMT, MSTA is a consulting technical analyst)

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