Last week, we did see signs of recovery, though crucial levels of Nifty remained unconquered. While traders are still in two minds, it is certainly a departure from all the pessimism floating around in the previous week, especially with August favouring the bears historically.
Let us investigate the broader market sentiment to see if this is a dead cat bounce or if there are turnaround signals sector-wise or among the smaller caps, which is often where signals of risk appetite or the lack thereof emerge. Meanwhile, it is also to be noted that the majority of FIIs continue to hold Index futures shorts.
We have been looking forward to their short covering as a leading indicator towards upside. However, this is yet to happen. Incidentally, 56% of the index future short OI is held by FIIs.
Broader market sees green shoots
While the month, so far, has seen systematic declines, sectoral and benchmark indices have come closer to the 200-day SMA than ever, with Nifty consumer durables, IT, Energy, FMCG, and Media slipping below their respective 200-day SMAs. And, for the same reason, all indices except for Nifty media and PSU bank had drifted below and further away from their respective 10-day SMAs, confirming the bearish bias.
However, last week saw several indices staging reversal attempts. Consequently, we now have Nifty 50, Nifty 500, Nifty Auto, Nifty IT, Nifty Media, Nifty PSU Bank and Nifty Pharma indices trading above their respective 10-day SMAs. Additionally, 43% and 39% of mid- and small-cap index constituents, respectively, are trading above their respective 10-day SMAs, confirming a rise in risk appetite, pointing to a potential turnaround attempt that is yet to be confirmed in Nifty.
IT and Pharma indices have the highest number of constituents above the 10-day SMA, at 80% and 70% respectively, while Oil & Gas and Realty have the lowest percentage of constituents above this key MA, at 20% each.
Sector action: Realty near support; a reversal may be attempted
The Nifty Realty Index is near a critical support level, with a bounce toward 917–940 looking increasingly likely. After a corrective phase since June, the index is stabilising around the 61.8% Fibonacci retracement level at 877. A weekly inverted hammer candle hints at base formation, and the MACD on the daily chart is close to a bullish crossover, signalling a potential trend shift.
Derivatives data show that about 20% of Realty stocks have an Open Interest Put-Call Ratio below 0.5, suggesting bearish exhaustion. The average RSI of index heavyweights is around 38, indicating oversold conditions and a probable rebound.
Reversal signals are also emerging in individual stocks such as DLF, Lodha, Godrej Properties, Oberoi Realty, Phoenix Mills, and Prestige Estates. These technical cues support the expectation of a recovery toward the 917 and 940 levels in the near future.
Sector action: Auto stocks eying a breakout
The Auto Index appears poised for a breakout, with Maruti likely to lead the charge toward the 24,570 level. Since May, the index has been consolidating within a broad range of 24,150 to 22,190, following a move above the Supertrend level on the weekly chart. Momentum remains strong, and daily indicators, including a bullish MACD crossover, suggest an imminent breakout.
In the derivatives market, roughly 30% of F&O stocks have seen short positions in near out-of-the-money put options, while about 10% of near in-the-money and out-of-the-money call options have attracted long positions. This points to cautious optimism among traders regarding further upside.
Among key auto stocks, M&M, Maruti, Tata Motors, Bajaj Auto, and Eicher Motors are displaying bullish technical setups. Maruti, in particular, stands out and may drive the index higher in the near term.
First published in Financial Express
