Why Nifty could fall further in the short term

Technically, Nifty has fallen back into the falling channel, heightening the chances of further downside. On the daily chart, the benchmark Nifty has given an upward consolidation breakdown, again suggesting rising bearishness. The 50-DMA, the longer period moving average (17944), is staying below the shorter period moving average, the 14DMA (17803) on the daily chart, pointing towards a bearish crossover. Also, the current value is sitting well below the critical near-term moving averages, with the momentum oscillator RSI (14) slipping below the reading of 50.

The current set up is likely to keep the Nifty under pressure, with a potential downside towards 17,150–17,200 over the short term. Again, a fall below 17,150 may trigger a correction towards 16,750. While, on the higher end, crucial resistance is placed at 17,800, any rally is likely to get sold into until the Nifty remains below 17,800. 

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Meanwhile, the Bank Nifty bears attacked the market with full force throughout the week, and the index breached its support zone of 41,000. The undertone remains bearish, with an immediate hurdle at 40,600 levels. The index’s immediate support stands at 39,500, and if it fails to hold this support on a closing basis, the sell-off drags the index towards the 38,000 level.

Mid, small-cap Performance

The broader markets also witnessed a bout of bear attacks as the Nifty midcap and small cap indices ended the week falling 1.76% and 2.08%, respectively.

Among the sectoral indices, the Nifty Metal index remained firmly in the bear grip. Weakness is due to the interest rate hike approaching 5%, which was previously expected to peak, but now it appears rates will cross higher than 5%, causing the base metals to correct.

Meanwhile, the Nifty Oil and Gas index corrected heavily over the past few weeks. Previously, it had fallen below the rising trend on the daily chart. However, on the lower end, the index has reached near the support level of previous swing lows. The momentum indicator is deep in the oversold zone. As a result, in the current situation, the possibility of recovery cannot be ruled out.

The author, Rupak De is a Senior Technical Analyst at LKP Securities

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