Nifty at sub-17,500 level. Can it stage recovery next week?

Nifty on Friday settled lower for the sixth straight session, making a lower high-low formation for the fifth day in a row. Friday saw the index forming a bearish candle for the sixth straight day. On the weekly scale, the index formed a long bearish candle, with no lower wick, suggesting the bears were at the driving seat. While the daily 14-day RSI is around the oversold zone, analysts do see further weakness on the index ahead.

"The 50-DMA and 14-DMA are in a bearish crossover. Also, the current index value is sitting well below the critical near-term moving averages, with the momentum oscillator RSI (14) slipping below the reading of 50. The current set-up is likely to keep the Nifty under pressure, with a potential downside towards 17,150–17,200 over the short term. On the higher end, crucial resistance is placed at 17,800," said Rupak De of LKP Securities.

For the day, the index closed at 17,465.80, down 45.45 points, or 0.26 per cent. This was the first sub-17,500 closing for the index since 17,486.95 level on October 18, 2022. For the week, the index was down 478.40 points, or 2.7 per cent.

Nifty is trading around a crucial support trendline derived at by joining the previous couple of swing lows, said Jatin Gedia, Technical Research Analyst at Sharekhan.

"On the hourly charts a positive divergence is developing and the hourly momentum indicator also has a positive crossover, which indicates that a bounce is possible. But such a bounce is likely to be temporary and is unlikely to result into a trend reversal. The daily momentum indicator has a negative crossover, which is a sell signal. Overall, the downtrend is still intact and any bounce should be used as an opportunity to create fresh short positions," Gedia said. This analyst has a short-term Nifty target of 17,350 level.

Amol Athawale, Deputy Vice President - Technical Research at Kotak Securities said Nifty's long bearish candle on weekly chart indicates further weakness. But "with the market in an oversold territory, we could see a quick pullback rally if the index trades above 17,500. Above which, the pullback formation is likely to continue till 17,600-17,750. On the flip side, as long as the index is trading below 17,500, the weak sentiment will continue. Below which the index could retest the level of the 200 day SMA or 17400.”

Devarsh Vakil of HDFC Securities said the Nifty is headed towards its 200-day SMA support, placed at 17,368. He noted that the index hit low of 17,353 on the Budget Day, February 1, which coincides with the 200-day SMA. Nifty," he said.

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