The Nifty ended its eight-week losing streak, forming a Doji candle on the weekly chart and closing 98.50 points, or 0.44%, higher. During the week, the index traded in a wide range of 596.20 points and tested a fresh low of 22,179.90, marginally below its previous major low of 22,182.55. However, buying interest emerged from oversold levels, helping the index stage a recovery on Friday.
Friday's session resulted in an inside candle, accompanied by subdued trading volumes and a further decline in open interest. This suggests that the recovery was largely driven by short covering rather than aggressive fresh buying. While the rebound has provided some relief after eight consecutive weeks of losses, it is still too early to conclude that the market has established a durable bottom.
Overall Trend Remains Under Pressure
Despite the weekly recovery, the overall technical structure continues to favour the bears. The Nifty remains below all its key short- and long-term moving averages, including the crucial 200-week moving average, currently placed near 22,625. The index is also trading 5.08% below its 50-day moving average, reflecting the extent of the recent weakness.
Furthermore, both the 200-DMA and EMA are trending lower, while the declining Bollinger Bands and other key moving averages indicate that the underlying downtrend remains intact. Until the index begins reclaiming these levels, any recovery should be viewed as a counter-trend rally rather than a confirmed trend reversal.
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RSI Positive Divergence Points to a Possible Recovery
On the positive side, daily momentum indicators are showing early signs of improvement, with positive divergences developing near the recent lows. These divergences suggest that selling momentum may be weakening, raising the possibility of an extension of Friday's rebound. However, price confirmation remains essential before placing greater confidence in the recovery.
The first important resistance lies between 22,599 and 22,625. This zone represents the confluence of Thursday's high of 22,599.05, the eight-day EMA near 22,604 and the 200-week moving average at 22,625. A decisive move above this resistance band would strengthen the near-term recovery prospects.
Beyond this zone, the 23.6% Fibonacci retracement level at 22,792 would act as the next immediate hurdle. If the index sustains above this level, the recovery could extend towards 23,070, the previous breakdown area that may now act as resistance due to the change in polarity. The 38.2% retracement level at 23,170 would be the next significant resistance, where a counter-trend rally could encounter renewed selling pressure.
Key Support Levels and Trading Strategy for Nifty
On the downside, the recent low of 22,179.90 remains the immediate level to defend. A decisive break below this support would weaken the recovery attempt and increase the risk of further declines towards the previous major lows of 21,743 and 21,281.
For the coming sessions, the technical setup supports a cautiously positive near-term approach, given the oversold conditions and emerging positive divergences. However, the broader trend remains bearish, and traders should avoid treating the initial rebound as confirmation of a reversal.
A sustained move above 22,625, followed by a close above 22,792, would provide stronger confirmation of the recovery and improve the case for fresh long positions. Importantly, a weekly close above the 200-week MA would add credibility to the rebound. Until these conditions are met, rallies may continue to face selling pressure at higher levels.
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Stock to Watch: Sky Gold & Diamonds
Sky Gold & Diamonds has broken out of an eight-week base and closed at a fresh lifetime high, supported by higher trading volumes that lend credibility to the breakout. The Relative Strength (RS) line has also reached a new high, indicating the stock's outperformance relative to the broader market.
The overall technical structure remains strongly bullish, with all key short- and long-term moving averages trending higher.
Momentum indicators also reinforce the positive setup. The MACD remains bullish across multiple timeframes, while the RSI is firmly positioned in the bullish zone.
Overall, the stock has registered a strong breakout, supported by favourable price action, volumes and momentum indicators. A sustained move above Rs 926 could open the way for an upside towards Rs 1,005, with a stop-loss at Rs 883. If the stock decisively crosses Rs 1,005, the rally could extend further towards Rs 1,065.
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