F&O Talk: Nifty has slipped below its crucial support, says Sudeep Shah; picks 5 stocks for next week
Sensex, which had dropped around 740 points in the morning, recovered 622 points to close at 74,782. Nifty 50, which had fallen below 23,250, rebounded 167 points to end the session near 23,400. Despite the sharp recovery, the Indian stock market overall closed in the red, with Sensex down 121 points and Nifty down 80 points.
Analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ETMarkets regarding the outlook for the Nifty, options data as well as an index strategy for the upcoming week. The following are the edited excerpts from his chat:
1.) Nifty down 2% this week, how are charts looking and what strategy should traders adopt?
For the fifth consecutive week, the benchmark index Nifty ended in negative territory, reflecting the persistent weakness in market sentiment. The index declined nearly 2% during the week and formed a sizeable bearish candle with a lower shadow, indicating that despite some buying interest at lower levels, selling pressure continues to dominate the broader trend. However, domestic equities did not weaken in isolation, with overseas developments further exacerbating market pressure.
Those global developments were dominated by the escalation in geopolitical tensions between US and Iran. Brent crude oil prices witnessed a sharp surge, while the US 10-year bond yield climbed to 4.97%, its highest level since October 2023. The combination of rising crude prices, elevated bond yields and geopolitical uncertainty significantly dented investor sentiment. And as these concerns intensified, the selling pressure on Nifty gradually transformed from a controlled decline into a much sharper correction.
That sharper correction becomes evident when we look at the index’s journey since its recent peak. After marking a high of 24,774 in the first week of August, Nifty gradually moved lower, with the pace of the decline accelerating significantly during the previous week. From its recent high, the index has tumbled more than 1,500 points, or over 6%, in just 29 trading sessions. The magnitude and speed of this fall have now started leaving a much clearer imprint on the index’s technical structure.
That deterioration is visible across multiple technical parameters. Nifty has slipped below its crucial short and long-term moving averages, reinforcing the bearish undertone. Momentum indicators and oscillators are also portraying a weak picture. The daily RSI is currently at 27.66 and remains in a falling mode, while the weekly RSI is approaching the crucial 40 mark and continues to trend lower. With momentum weakening across timeframes, the market is now approaching a zone where the next move could become particularly important.That makes the 23,100–23,000 zone a crucial area to watch in the coming sessions. This zone represents a strong confluence of the 61.8% Fibonacci retracement of the previous rally from 22,182 to 24,774 and a prior swing low. A decisive break below the 23000 mark could open the door for further downside towards 22,800, followed by 22,500.
On the upside, the 23,600–23,650 zone will act as a crucial hurdle for the index. A sustained move above this zone could provide the first indication that the selling pressure is beginning to ease. Until then, the battle between the crucial support near 23,000 and resistance around 23,650 is likely to decide whether Nifty is preparing for a rebound or another leg of the correction.
2.) Given the uncertainty around Iran war and rising yields, what should traders watch out for?
Given the uncertainty surrounding the Iran conflict and the recent rise in bond yields, traders should remain cautious and avoid taking overleveraged positions in the current volatile environment. Risk management and disciplined position sizing will be key until market conditions stabilize.
From a technical perspective, traders should closely monitor the 23,100-23,000 support zone on the Nifty, which remains a critical near-term level. A sustained breach below this range could lead to further downside pressure, while holding above it may help the index stabilize and attempt a recovery.
3.) India VIX has climbed 13% in the last 5 days. What is it indicating?
India VIX has given a breakout from a downward-sloping trendline on the daily chart. The volatility index had found strong support in the 9.7–9.5 zone and subsequently consolidated within a narrow range before starting to move higher. The recent rise in volatility comes amid heightened tensions in the Middle East, rising crude oil prices and higher bond yields in the US and Japan.
Despite the prolonged uncertain environment, Indian VIX has so far remained relatively subdued and has not reacted as sharply as one might have expected. From a technical perspective, it is still too early to conclude that we are witnessing the beginning of a significant spike in volatility. However, a sustained move above the 13–13.5 zone could signal a meaningful rise in volatility and potentially have a stronger impact on broader market movements.
4.) Metal stocks witnessed downturn on Friday after bond yields rose. How can one trade Vedanta, Hindustan Copper, NALCO, and Vedanta Aluminum?
Vedanta slipped below its 200-day EMA during the session, but strong buying at lower levels helped the stock reclaim and close above this key long-term moving average. The stock has largely been consolidating in the Rs 250–290 range for nearly two months. A decisive breakout on either side of this range will provide further directional cues.
Hindustan Copper has been forming a symmetrical triangle pattern on the weekly chart. The Rs 620–630 zone is likely to act as immediate resistance, while Rs 460–470 is likely to provide immediate support. The falling ADX indicates a lack of strong directional volatility. A decisive breakout from the triangle will provide further directional cues.
NALCO has been witnessing a phase of distribution following a strong run. The stock has been consolidating within a broad Rs 329–445 range since the beginning of the year, largely oscillating within this band. A decisive breakout on either side of the range will provide further directional cues.
Vedanta Aluminium continues to have a relatively weak technical setup. Since its demerger, the stock has largely remained sideways to bearish. The Rs 428–430 zone is likely to act as immediate resistance. As long as the stock trades below this zone, the overall bias is likely to remain weak.
5.) Can you pick 5 stocks that look good on the charts for the coming week?
Based on the current technical setup, LIC Housing Finance, Emcure Pharmaceuticals, Five-Star Business Finance, VA Tech Wabag and PNB Housing Finance are among the stocks that appear well-positioned for the coming week.
(This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here
