The Nifty 50 index ended its two-week winning streak, declining 204.65 points, or 0.83%, during the week. The index ended in red for four out of five trading sessions. It also closed below the previous week's Doji candle, reinforcing the bearish implication of that formation.
The Doji had already faced stiff resistance near the 50-week moving average, indicating strong supply at higher levels. The ongoing minor downswing is now nine trading sessions old.
Since the introduction of the Closing Auction Session (CAS), the Nifty has frequently formed candles with the open = high, or close = high, at or near the same level.
Nifty Trades Above 10 and 20-Weeky Moving Average
Despite the recent decline, the Nifty continues to trade above its 10-week and 20-week moving averages. On the daily chart, the index has found support around the 20-DMA for the past three sessions. Friday's session produced a Doji candle, suggesting indecision among market participants. Further, for the last two trading session the index has been trading within the range of August 12 range.
The 38.2% Fibonacci retracement of the previous upswing has also provided support over the last three sessions. The current price structure resembles a flag formation, with the index testing the lower end of the pattern on Wednesday.
Market participation has declined sharply, while India VIX remains at relatively lower levels. This combination has resulted in choppy and erratic price movement, making sustained directional moves difficult.
Key Support Level For Nifty
The immediate support zone for the Nifty is placed at 24,328-24,190. The index has also moved closer to its 50-DMA, with the gap narrowing to just 1.17%, compared with 3.54% nine sessions ago. This indicates that the benchmark is gradually reverting to the mean.
On the upside, a decisive close above the 8-EMA at 24,446, followed by a move above 24,576, the high recorded on August 11, would improve market sentiment. A sustained move above this zone, particularly with strong volume, could provide the foundation for a fresh bullish move.
50-Week Average Remains the Bigger Hurdle
For the uptrend to resume convincingly, the Nifty needs to reclaim the 50-week moving average at 24,745. A decisive close above this level would constitute a significant long-term breakout and could warrant an increase in long positions.
Until the index clears this resistance zone, traders should maintain a cautiously optimistic approach with light position sizes. On the downside, a decisive close below 24,300-24,190 would weaken the technical setup for the bulls.
Stock to Watch: Supreme Industries
Supreme Industries is showing signs of a potential breakout from a cup-like price formation. The recent surge in volume points to increasing buying interest, while the stock continues to trade above its 20-DMA, 50-DMA and 100-DMA.
The Bollinger Bands have started to widen following a period of tight contraction. The stock has also moved above the moving average ribbon, adding strength to the setup.
Momentum indicators are supportive as well. The MACD has generated a fresh bullish signal, while the 14-period daily RSI has moved above its previous swing high. The Stochastic RSI has also turned bullish, and the KST remains in positive territory. The Elder Impulse System has formed a strong bullish bar, further supporting the improving momentum.
Overall, the technical setup indicates that the stock is approaching a potential bullish breakout. A sustained move above Rs 3,560 could open the way towards Rs 3,660, with a stop-loss at Rs 3,460. If the stock decisively crosses Rs 3,660, the next upside target would be Rs 3,740.
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