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Below the Quote on Weekly Technical Outlook: Market in carnage, breadth worsening, no short-term relief  by Lovelesh Sharma, Consultant, SAS Online – a deep discount broker

The market has turned into a complete carnage, with market breadth deteriorating day by day and no signs of relief in the short term. Despite domestic record flows, Nifty 50 has experienced a drawdown of more than 10% since 2022, indicating a significant correction both in price and time. The factors affecting sentiment, including the Trump Era policies and China’s policy rates, add to the overall uncertainty.

Market Breadth

Market breadth, which helps us understand the internal strength, appears to be very weak. Firstly, more than 80% of stocks are trading below their short- and mid-term moving averages, such as the 10, 20, and 50-day MAs. This figure is concerning, and the number of stocks experiencing drawdowns from all-time highs continues to rise. Secondly, the net new high to new low ratio remains close to zero, and it turned negative last week, further confirming weak market breadth.

Oversold Conditions

Zooming in on the top 200 stocks, we see that more than 70% have bearish MACD signals, while the advance-to-decline ratio remains negative. This indicates an oversold market. However, despite record inflows from domestic institutional investors (DIIs), foreign institutional investors (FIIs) remain net sellers, which continues to weigh on market sentiment.

The Trend – Testing the 200-Day MA

On the weekly chart, Nifty 50 has formed a pattern of higher highs and higher lows. However, on the daily chart, the index is heading lower towards 23,200 - 23,100 levels. The 20-day MA is sloping downward, and the 50-day MA has also turned downwards. Importantly, Nifty has now touched the 200-day MA at 23,555, which is a crucial level for determining market direction. A move below this level could put further pressure on sentiment. We might see a short-term bounce, but that is unlikely to mark a bottom unless there is an improvement in market breadth.

Outlook

We maintain a "sell on rise" strategy as we have in the past, recommending traders to utilize the resistance levels at 23,750 - 23,900 for selling opportunities. On the downside, we see support at 23,410 - 23,225, which were significant price points on Election Day and could act as strong support. The range of 23,100 - 23,200 is an area where we see a confluence of support, potentially indicating a short- to mid-term dip.

BankNifty

The closure of the weekly expiry will have its own effect on BankNifty price action, as the impact of 0DTE (zero days to expiry) options and the volatility observed are evident. On the weekly scale, the underlying sector internals are also weak, indicating an oversold state, with 90% of stocks in a bearish trend. Additionally, the advance-to-decline ratio for the BankNifty sector is at its lowest level in the last 1.5 years.

The key level based on price action for BankNifty is 50,000. A break below this level could push BankNifty lower to the 48,500 - 47,300 range, while on the upside, resistance is placed at 50,750 and 51,280. The RSI at 29 suggests an oversold condition, while the ADX MDI is peaking higher towards 33.01, indicating a possible inflection point. We maintain a "sell on rise" strategy, with upside resistances to be utilized. Only a close above 50,750 will negate our bearish view.

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