FIIs have continued to build on to their Index Future Short positions while cutting their longs on the Index Futures. On Friday 6.7% of Index Future longs were cut, while 5.9% of Index Short positions were added.
This has consequently brought down the FII Index Future long proportion to 15, which is the lowest since February 2025. Incidentally, during this period, the Nifty tested the lower Bollinger Band, but a turn higher unfolded only after an extended slippage of another 4% ensued. If Nifty slips another 4%, it would meet the 200-day Simple Moving Average (SMA), which is now in the vicinity of 24,000.
Broader market does not appear very weak
Last few weeks, we had pointed out the lack of momentum as a reason for not expecting vertical upsides. Now a range breakout on the downside is visible, but again, momentum appears to be missing on Nifty. Incidentally, the broader market also does not provide sufficient signals towards a major collapse as would have been expected from last week’s prolonged and steep falls.
Incidentally, 66% of small cap index stocks were seen trading above their respective 10-day SMAs on Friday, when compared to 63% on Thursday. Nearly 80% of Small Cap Index constituents are still trading above their respective 50-day SMA, a key moving average gauge for medium-trend uptrends.
The Nifty is presently near the lower bollinger band, presenting a case for a bounce back, but with momentum low, we could be entering a sideways trend first before directional momentum emerges.
Nifty Defence Index: Indicators point to potential correction
The Nifty Defence Index has dropped below the 23.6% Fibonacci retracement level of 8,235, measured from the February 2025 low to the June 2025 high, on the weekly chart – a key technical signal suggesting increased downside risk.
On the monthly chart, the development of an Evening Star pattern – a classic bearish reversal setup – further highlights growing weakness in the sector.
Among the leading constituents – Solar Industries, Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Mazagon Dock, and Bharat Dynamics (BDL), which collectively account for approximately 84% of the Index – technical conditions appear to be deteriorating. Several of these names are either nearing a bearish crossover on the weekly MACD or have slipped beneath key moving averages, accelerating negative momentum.
From a derivatives standpoint, all index components saw short positions added on Friday, with over 60% reflecting week-over-week short buildup. This indicates traders are increasingly positioning for continued declines.
Given the confluence of technical and derivative-based signals, the Nifty Defence Index may be poised to drift lower toward the 7,650 mark, dragged by continued weakness in its major stocks. With momentum presently in favour of extended downsides, we are pinning our hopes on oscillator exhaustion that usually appears after prolonged sell-offs, signalling a turnaround.
Nifty Financial Services Index: Technical setup hints at continued weakness
The Nifty Financial Services Index has slipped below its 50-day simple moving average (SMA) for the first time since March 2025 and has also violated a key rising trendline near 25,755 – both of which point to a possible extension of the current downtrend. Adding to this bearish outlook, the weekly MACD is approaching a negative crossover beneath the signal line.
From the derivatives angle, 63% of financial stocks registered fresh short positions on Friday, while 37% saw short additions over the week – an indication that traders are increasingly positioning for further declines.
Technically, notable financial names such as HDFC Bank, Axis Bank, HDFC Life, SBI Life, ICICI Prudential, and ICICI Lombard are showing signs of fragility and could add pressure to the index. That said, the Bajaj twins may act as contrarian forces, potentially cushioning the downside amid sector-wide weakness.
Given the prevailing signals, the Nifty Financial Services Index appears poised to retreat further toward the 26,150 and 25,900 zones in the near term.
First published in Financial Express
