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The NSE Nifty 50 index tested its long-term (200-Daily Moving Average) on Wednesday for the first time since April 2023. The 200-DMA holds significance as it helps in determining the overall trend for the particular index or stock. In general, stocks or indices quoting below 200-DMA are said to be in down (bearish) trend and vice versa.
Historical chart shows, that the Nifty 50 index has rallied as much as 51.6 per cent after breaking above its then 200-DMA, which stood at 17,335 to register a new all-time high at 26,277 in September 2024.
At present, the Nifty has declined nearly 10.5 per cent from its summit, and is seen quoting near its 200-DMA, which stands at 23,530 levels.
Among the Nifty constituents, 20 out of the 50 stocks were also seen trading below this long-term moving average. From the broader Nifty 500 index, as many as 240 stocks were quoting below their respective 200-DMA; thus implying a broader market correction. ALSO READ: 11 of 17 Nifty sector indices in correction mode; auto, PSU hit
Will the market correction halt here, or will the slide continue? What if the Nifty 50 fails to hold the 200-DMA support?
Here's what can happen next:
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Nifty
Current Level: 23,550
Downside Risk: 13.8%
Support: 25,530; 25,250; 22,900
Resistance: 23,600; 23,700; 24,300; 24,665
Apart from the 200-DMA support at 23,530 levels, the chart shows presence of another key support in the form of 50-WMA (Weekly Moving Average) at 23,250 levels. The Nifty has sustained above this weekly moving average since March 2023. CLICK HERE FOR THE CHART
Having said that, the Nifty needs to maintain a weekly close above 23,600 for hopes of a short-term pull-back, shows the weekly chart. At present levels, the Nifty is seen quoting below the lower-end of the Bollinger Bands on the weekly scale, which is also considered a bearish sign.
In case, the weekly support too is violated, technically the Nifty 50 index could then extend the fall towards the 38.2 per cent retracement level of the earlier Bull Run, which stands at 22,920 levels.
Stock Market Crash Highlights: Sensex tanks 984pts, Nifty ends below 23,600; all sectors in red
Similarly, the golden ratio or 61.8 per cent retracement suggests a likely downside target of 20,850-odd levels for the Nifty 50 index.
Interestingly, the 61.8 per cent retracement is near an important gap on the daily chart. The Nifty has left an unfilled between 20,291 and 20,508 in the first week of December 2023. Historically, it's a proven fact that the Nifty has always filled any unfilled gaps on the daily charts till date.
In the very near term, apart from 23,600 resistance for the Nifty is seen at 23,700 as well. Break and sustained trade above 23,700, can trigger a spurt towards the 20-DMA, which stands at 24,300 levels. The overall bias for the Nifty is likely to remain tepid as long as the Nifty 50 index remains below 24,665 levels.
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