Stock market flashes oversold signal, but rebound remains elusive; Sensex, Nifty outlook

Benchmark stock indices Sensex and Nifty on Tuesday fell for the fourth straight session, with technical charts reaching oversold zones. A rebound cannot be ruled out but analysts are cautious. In a note, ICICI Direct said the bias may remain corrective as long as Nifty maintains lower-high-low formation on the technical charts. It noted that the weekly stochastic indicator showed signs of oversold zone near 11, indicating a possibility of pullback. 

"However, to pause the on-going correction, Nifty need to decisively close above Monday's high. A failure to do so strong support is placed at 24,500 which has been held on multiple occasions despite geopolitical worries seen during May and June which coincides with a gap (24,378-24,164)," ICICI Direct said. 

With every attempted rebound being met with aggressive short buildups, the tone remains decisively bearish, said Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities.

"Nifty decisively broke below the crucial 24,700 mark—a level that earlier acted as a strong demand zone—and is now trading under its 50-Day exponential moving average (50-DEMA) placed near 24,950. This moving average, once a dependable support, now stands as the first line of resistance in the near term. A sustained close below 24,650 could pave the way for further downside, dragging the index toward the 24,500–24,450 support belt," he said.

On Tuesday, Nifty was trading at 24,627.75, down 53.15 points or 0.22 per cent. Sensex, on the other hand, stood at 80,698.05, down 192.97 points or 0.24 per cent.

There are more headwinds than tailwinds for the market, said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

"The major issue weighing on markets is that the expected trade deal between India and the US has not happened so far and the probability of a US-India deal before the August 1 deadline is becoming lower," he said. 

Over the past 21 sessions, Nifty has retraced 80 per cent of preceding 11 sessions 5 per cent up move. The slower pace of retracement, highlights robust price structure. A focus should be on accumulating quality stocks backed by strong earnings, ICICI Direct said.

Vijayakumar said sustained FPI selling is impacting the market despite the DII buying, saying it is better to remain in a wait and watch mode.