The Indian equity markets are facing strong bearish signals, with the Nifty 50 poised to test critical support levels and the Bank Nifty showing signs of a complete retracement of its recent upward rally. Amid holiday-season trading volumes and a cautious investor sentiment following global monetary policy announcements, here a detailed outlook and strategic recommendations for the near term.
Nifty 50: Bearish Momentum Ahead
According to Sudeep Shah, Head of Technical and Derivative Research at SBI Securities, the Nifty 50 is displaying significant weakness. Currently, 90% of its constituents are trading below their 20-day Exponential Moving Average (EMA), and 88% are below their 50-day EMA, signaling deteriorated internal strength.
Key Indicators:
- RSI (Relative Strength Index): Slipped below 40, signaling a bearish momentum shift.
- MACD (Moving Average Convergence Divergence): A bearish crossover has turned the histogram negative.
Crucial Levels:
- Support: 23,263 (November low), with a further downside to 23,000 in the short term.
- Resistance: 23,950–24,000 zone.
Despite lower trading volumes due to Foreign Institutional Investor (FII) holidays, the Nifty steepest weekly decline since June 2022, down nearly 5%, has erased four weeks of prior gains.
Bank Nifty: Likely to Hit Fibonacci Retracement Levels
The Bank Nifty is also underperforming, tumbling 5.27% this week, marking its sharpest drop since February 2022. On a weekly scale, it has formed a large bearish candle and slipped below its 20, 50, and 100-day EMAs.
Key Indicators:
- RSI: Dropped below 40, reinforcing bearish sentiment.
- Fibonacci Retracement: Likely to achieve a 100% retracement of its November-to-December rally.
Crucial Levels:
- Support: Immediate support lies in the 50,450–50,400 zone. A breach could trigger a sharp correction to 49,787, with a further downside to 49,000.
- Resistance: The short-term resistance has shifted lower to 51,300–51,400.
Sector and Stock-Specific Insights
General Insurance Corporation: Extending Its Rally
General Insurance Corporation (GIC) has broken past a long horizontal resistance trendline with strong volume support, signaling bullish momentum.
- Upside Target: Rs 595, based on a symmetrical triangle breakout.
- Support: Immediate zone at Rs 470–465.
Although its RSI at 84.31 indicates overbought conditions, the stock is expected to consolidate before resuming its upward trajectory.
Dr. Reddy Laboratories: Gradual Move to Record High
Dr. Reddy Labs is trading within a Right-Angled Ascending Broadening Wedge pattern. While it is unlikely to hit record highs next week, robust volume support and positive momentum suggest it could do so within 2–3 weeks.
- Short-Term Target: Rs 1,500.
KEC International: Strong Rebound Expected
KEC International has formed a solid base near its 20-day EMA, coinciding with a 38.2% Fibonacci retracement level.
- Buy Zone: Rs 1,240–1,230, with a stop loss at Rs 1,195.
- Upside Targets: Rs 1,300 and Rs 1,340.
Ipca Laboratories: Outperforming the Market
Ipca Laboratories has rebounded from its 100-day EMA, supported by strong volume.
- Buy Zone: Rs 1,580–1,590, with a stop loss at Rs 1,535.
- Upside Targets: Rs 1,670 and Rs 1,730.
Stay Away from Siemens
Siemens has formed a Triple Top pattern on the weekly chart and is approaching its neckline. Given its underperformance and bearish indicators, exiting or avoiding this stock is advisable for the next few months.
Sector Outlook: IT and Auto Under Pressure
Nifty IT:
Despite being in the leading quadrant of the Relative Rotation Graph (RRG), the index is showing waning bullish momentum. Short-term consolidation with a bearish bias is expected.
Nifty Auto:
The index has broken a Stage-4 Cup pattern and is trading below its key moving averages. With bearish RSI signals, further downside is likely in the short term.
With bearish momentum dominating the indices, cautious trading and selective stock picking are advised. Focus on sectors and stocks with strong fundamentals and technical indicators, while steering clear of those showing clear bearish trends.
