Nifty, Bank Nifty struggle; further downside: Sudeep Shah

Nifty fell for the fifth consecutive session and registered a fall of 364 points or 1.52%, to close at 23,587. Nifty ended in red for all the trading sessions of the week. On a weekly basis, the index registered a massive fall of 4.77%, the highest weekly fall in percentage term since 17th June 2022.

Nifty has also violated its 200-day SMA and EMA supports and closed on a weak wicket. It is continuing a downtrend, and the only support visible on the chart is the swing low of 23,263, made on 28 November 2024.

In such a market, analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, at SBI Securities, interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the upcoming week. Following are the edited excerpts from his chat:

Starting with a broader overview of the markets, what is your take on the markets this week?

After the Federal Reserve's monetary policy announcement on Wednesday, global indices sharply declined. Despite the Fed's decision to lower interest rates by a quarter point, as anticipated, the projection of fewer rate cuts next year than previously estimated dampened investor sentiment. Nifty's benchmark index has tumbled nearly 5 percent, marking its steepest weekly fall since June 2022. This decline has wiped out the gains of the past four weeks.

Adding to the bearish sentiment, Nifty has slipped below its short and long-term moving averages. Most notably, the daily RSI failed to cross the 60 mark and subsequently dropped below 40, signaling a bearish shift in momentum as per RSI range shift rules. Additionally, the MACD line has crossed below the signal line, turning the histogram negative and reinforcing the bearish outlook.

Currently, 90 percent of Nifty constituents are trading below their 20-day EMA, while 88 percent are trading below their 50-day EMA, reflecting significantly weakened internal market strength.

These technical indicators collectively point to strong bearish momentum in the index.

With Nifty below 200 SMA and RSI close to the oversold territory, what do you expect? A further downside or a potential reversal?

Currently, Nifty is comfortable trading below its 200-day SMA, and the bearish outlook strengthens. While the RSI has not yet entered oversold territory, it remains in the bearish zone. According to RSI range shift rules, the oversold region starts at 20 in a bearish phase. Currently, the RSI is at 34.08, suggesting more room for the downside before a potential reversal.

Are there any key levels to monitor for determining a trend in Nifty?


Talking about crucial levels, the resistance has shifted lower to the 23,950-24,000 zone & till the Index doesn't cross and sustains above the 24,000 zone, there is an increased likelihood of the Index retesting its prior swing low of 23250 followed by 23000 on the downside.

Only on a crossover above the 24,000 zones, short covering up to the 24,300-24,450 zone is likely.

Meanwhile, Nifty Bank, which was showing some strength in the recent past, is also now in a downward trend, oscillating in its consolidation zone. What is your view on the index?

The banking benchmark index Bank Nifty has strongly underperformed frontline indices as it has tumbled by 5.27 percent. This was the steepest decline since February 2022. Along with this fall, the index has slipped below its 20, 50, and 100-day EMA level. The daily RSI has also slipped below 40 mark, and it is in a falling mode.

These technical factors indicate further bearish momentum in the index. Talking about levels, the 200-day EMA zone of 50,450-50,400 will act as immediate support for the index. Any sustainable move below the level of 50,400 will lead to a sharp correction upto the recent swing low of 49,787 level, followed by 49,000 in the short term.

While, on the upside, the resistance has shifted lower in the zone of 51300-51400 level in the short term.

The FII selling has only increased, and it has a significant impact on the larger companies. Could this further pressure these 2 indices?


Yes, the increased selling by FII does tend to exert additional pressure on large-cap companies, which are often heavily weighted in indices like Nifty and Bank Nifty. As FIIs continue to offload, the broader sentiment can weaken further, potentially leading to heightened selling pressure in both indices. This could result in a more cautious market environment, especially if domestic flows are not strong enough to counter balance the FII outflows.

Sensex is trading near its 200-day SMA, how would you read it?


The Sensex has also witnessed a steepest correction since June 2022. Along with this fall, the index has slipped below its 200-day SMA level, which is a bearish sign. The daily RSI has also slipped below the 40 mark and it is in a falling mode.

Hence, we believe the index is likely to test the recent swing low level of 76,802, followed by 76,000 levels in the short term. On the upside, the resistance has shifted lower in the zone of 78,800-79,000 level.

IT and Pharma indexes are trying to lift the sentiment of the market. Do you see this strength to continue?


The Nifty IT index has slipped below its 20-day EMA, which is a bearish sign. The momentum indicators and oscillators also suggest declining momentum. In the Relative Rotation Graph (RRG), Nifty IT remains in the leading quadrant but has been declining over the past five sessions, indicating waning bullish momentum.

Conversely, the Nifty Pharma index is exhibiting strong outperformance. It recently achieved a consolidation breakout and is trading above both its short and long-term moving averages. In the RRG graph, Nifty Pharma is in the improving quadrant and on an upward trajectory, suggesting continued short-term outperformance.

Therefore, while Nifty IT may face continued bearish pressure, Nifty Pharma is likely to maintain its strength in the near term.

Any names for trade or investment in these 2 sectors?


LUPIN: The stock has recently surged above its prior swing high along with relatively higher volume. Currently, it is trading above its short and long-term moving averages. These averages are in a rising trajectory, and they are in the desired sequence, which suggests the trend is strong. Hence, we recommend accumulating the stock in the zone of 2,160-2,140 level with a stop loss of Rs 2,080. On the upside, it is likely to test the level of 2,260, followed by 2,300 in the short term.

IPCALAB: Recently, the stock has taken support near its 100-day EMA level and thereafter witnessed a sharp rebound along with robust volume. Further, it has surged above its short and long-term moving averages. Most noteworthy, the stock is strongly outperforming the frontline indices. Hence, we recommend accumulating the stock in the zone of 1,580-1,590 level with a stop loss of Rs 1,535. On the upside, it is likely to test the level of 1,670, followed by 1,730 in the short term.

What is your view on the Fed’s hawkish commentary for 2025, and how will it likely impact our markets?


Fed's hawkish view has led to a sell-off in the Global Markets with the fears of higher inflation resurfacing, which could limit future rate cuts.

Given weakness in the indices, how do you recommend traders to pick up stocks for trading?


In a weak market, traders can use the Ratio Chart to identify outperforming stocks and sectors, the RRG graph for broader insights, and the RSI range shift rule to time entries effectively. These will not only help traders to make sustainable profits but also help them eliminate a lot of wrong trades, which is the most important part of trading.

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