After a sharp correction from recent highs, the Nifty 50 index may have one more bounce left before it might head towards 23,350 points, according to technical charts. The over 2,000-point fall from its peak has pushed the index into the oversold territory, calling for a short recovery as soon as this week.
The Nifty 50 has dropped 8%, or 2,096.55 points, from its high of 26,277.35, ending at 24,180.80 points on Friday. After breaking below the 50-day moving average, analysts are eyeing the next significant level at the 200-day moving average, placed at 23,350 points. However, analysts don’t expect the index to slide to 21,000-22,000 levels anytime soon.
Technical analysts see a potential short-term recovery of up to 24,500 points. However, a failure to hold above the 23,800-24,000 range could trigger a further 1,000-point slide from the current levels.
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“While the short-term texture is weak, there’s a temporary oversold situation which can lead to a pullback rally soon,” Amol Athawale, vice president of technical research at Kotak Securities, said. Athawale expects a brief rebound, with immediate support at 24,100 points and resistance at 24,500-24,600 points. A breach below 24,100 points could see the index testing 23,800 points, followed by 23,500 points in the medium term, charts suggest.
Anand James, chief market strategist at Geojit Financial Services, pointed out that despite the persistent decline, market volatility hasn’t spiked. “The volatility measures, such as India VIX and straddle prices ahead of expiry, haven’t surged, indicating that panic hasn’t set in fully.” James also noted a historical trend: When the Diwali week begins negatively, a rebound often follows in the subsequent two months.
The Relative Strength Index (RSI), a momentum indicator used to gauge overbought or oversold conditions, shows an oversold situation with RSI around 25. This reading mirrors conditions seen exactly a year ago, when the Nifty managed to reach a new high after panic selling, said Mehul Kothari, deputy vice president of technical research at Anand Rathi Shares and Stock Brokers.
An RSI reading, which ranges from 0 to 100, below 30 signals an oversold market, while a reading above 70 indicates overbought conditions.
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Kothari expects a gap-down opening for markets on Monday,
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