Summary:
Nifty 50 recovered from a five-month low but remained below its 200-day moving average on September 16. With crude oil prices, bond yields, inflation concerns and weak market breadth weighing on sentiment, traders are watching the 24,516 resistance level closely.
While the Nifty 50 recovered from recent lows, the bearish technical setup continues to remain in place, with an important level of resistance looming ahead. The Nifty closed at 23,217.60 on September 16, compared to the 200-day moving average (200-DMA) of 24,516.33. The level implies that the benchmark is still about 5.3% below the critical long-term trend indicator.
The 200-DMA is one of the key indicators that traders and investors watch out for, as it tends to capture the price trend over a time frame of nearly a year. A move above this level indicates a rise in bullish momentum, whereas a prolonged stay below the 200-DMA implies that bears have control over the market.
However, the Nifty 50 was earlier hovering around the 200-DMA, with the gap widening as recent selling pressure was triggered by external and internal factors.
Why Are Global And Domestic Factors Still Concerned For Market?
The weakness seen in Indian equities has been triggered by a confluence of external and domestic factors, with rising crude prices and higher US bond yields impacting the market sentiment.
Brent crude prices rose on the back of geopolitical tensions, with concerns over the oil supply triggering concerns over inflation, currency movements and the interest rate outlook in the domestic market. India is one of the largest importers of crude oil and a prolonged increase in prices can adversely impact the input costs of many firms.
Meanwhile, higher global bond yields have impacted risk appetite of investors, as higher yields impacted the valuation of equity instruments. With valuations in many sectors being guided by the forward earnings growth outlook, rising borrowing costs could weigh on the performance of many stocks.
Recovery Sees Buying Interest At Lower Levels
While the market continues to face pressure on the back of higher oil prices and bond yields, there is also selective buying interest at lower levels. The recent rally has seen bargain hunting in some cyclical sectors, with banking and financial space contributing to the rise. However, the overall market gains have been limited in breadth.
While the recent recovery has seen improvement in sentiment, the index has not found enough buying support to move decisively higher and breach the critical 200-DMA level. Traders are also watching out for whether selling pressure resumes at higher levels or whether buying interest can be seen on dips.
Why Did Nifty Fall Despite The Recent Recovery?
The weakness below the critical 200-DMA level was largely triggered by rising crude prices, higher bond yields and concerns over inflation. The weakness also came as the market faced uncertainty on a global level, which impacted investor risk appetite.
Earlier selling pressure saw the Nifty fall to a five-month low of 23,118.60 on September 15, before recent buying interest saw the index rebound on Wednesday. The weakness was triggered by a confluence of factors including higher crude prices and bond yields.
What Investors Should Watch Out For Next
The further move of the Nifty will depend on whether the index is able to recover and move closer to the 200-DMA along with improvement in market breadth. Apart from technical factors, investors have to also keep an eye on crude prices, bond yields, foreign inflows and earnings outlook. While the recent recovery has provided some relief to the market, the bulls have to move decisively higher to move past the key averages.
