The Nifty extended its recovery on Thursday, closing at its highest level since September 25. The index moved decisively above its 20-DMA and the 23.6% Fibonacci retracement of its recent decline. The rally was accompanied by higher trading volumes and a breakout from a rounding-bottom-like pattern. The index also approached its previous breakdown level of 23,070, recording an intraday high of 23,056.
Large-Cap Stocks Lead, but Market Breadth Remains Weak
Despite the strong performance of the benchmark index, broader market participation remained subdued. Midcap, Smallcap and Microcap indices underperformed, with 284 Nifty 500 constituents closing in negative territory. The recovery was largely driven by large-cap stocks, as only six Nifty 50 constituents ended the session lower. Meanwhile, India VIX declined 4.10% to 14.02, while open interest fell 2.27%, suggesting that short covering contributed to the rally.
On the technical front, the 14-period daily RSI moved closer to the 50 mark, while the lower Bollinger Band began to flatten, indicating a mean-reversion move. The Nifty is currently trading 0.66% above its 20-DMA but remains 2.47% below its 50-DMA, suggesting that the recovery is still at an intermediate stage.
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The weekly chart also shows improvement. Following last week's Doji formation, the index has moved above the previous week's high. A weekly close above the Doji high would strengthen the possibility of an extended counter-trend rally.
Nifty Outlook: Key Resistance and Support Levels
Going forward, the immediate hurdle lies in the 23,000-23,080 zone, which represents an important change-of-polarity area. A sustained move above this zone could pave the way towards 23,171, corresponding to the 38.2% Fibonacci retracement of the previous decline.
Beyond this, the next resistance is placed at 23,451-23,477, where the 50% retracement level coincides with the 10-week moving average. This zone deserves close attention, as counter-trend rallies often encounter selling pressure between the 38.2% and 50% retracement levels.
On the downside, the 20-DMA at 22,847 is likely to provide immediate support, followed by the stronger support zone of 22,550-22,650. For the recovery to gather further strength, the Nifty needs to sustain above the immediate resistance zone, preferably with continued buying interest and improved participation from the broader market.
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