Last week, we had viewed FIIs positioning with hope for a reversal with the long short ratio of their index future portfolio at an extreme. While such a move unfolded through the week, the pace of ascent towards the close of the week has raised fears of bullish exhaustion, especially given the sharp turn lower in the last hour of Friday.
And yet, the long-short ratio ended at the highest point of the week, thanks to consistent rise in longs and reduction in shorts through the week. Friday saw a cut of 3.2% in index future shorts which ended at 2,52,333 contracts, while the index future longs ended at 35826 contracts, getting a 2% boost on the last trading of the week.
These figures are not conclusive towards a directional indication, but it is safe to say that there is not enough evidence to support a major broad market collapse as might have been indicated by Friday’s last hour drop in the indices.
Broad market signals tell a different story, though. Only 26% of the Small Cap 100 Index closed above their respective 10-day SMA. Most sectoral indices also reflected this sentiment, except for Nifty Pharma, Metal and FMCG indices, which had 80%, 67% and 60%, respectively, of the constituents staying above the 10-day SMA.
Nifty Financial Services: Breakdown points to extended downside risk
The Nifty Financial Services Index is exhibiting pronounced signs of technical weakening across multiple timeframes, indicating a shift in underlying market sentiment.
On the daily chart, a clear breakdown below the Supertrend indicator, combined with the RSI slipping beneath the 45 mark, reflects fading momentum and a noticeable loss of bullish dominance. Additionally, price action is struggling to hold above crucial short-term support levels, suggesting that selling pressure is intensifying, especially during minor pullbacks and bounce attempts.
From a broader perspective, the weekly timeframe paints an even more cautious picture. The index is facing rejection near its weekly Supertrend resistance, while the expanding bearish MACD histogram signals strengthening downside momentum. This combination indicates that the recent decline may not be merely a short-term correction but could represent the early stages of a more sustained downtrend.
In the near-term, price action is consolidating around the 25,300–25,000 support zone. A decisive and sustained breakdown below the 25,000 level could act as a key trigger, potentially accelerating the decline toward 24,700 and even 24,300 in the short run. The persistent inability of the index to reclaim higher levels reinforces a “sell on rallies” approach.
On the upside, the 26,000 level continues to act as a strong resistance barrier. Any recovery or pullback toward this zone is likely to encounter selling interest unless accompanied by a meaningful reversal in momentum indicators and trend structure.
Nifty Auto: Emerging rebound setup suggests short-term upside potential
The Nifty Auto Index is beginning to show encouraging signs of a short-term bullish reversal, supported by constructive price action near key support levels. On the daily chart, the index has rebounded from its Supertrend support zone around 24,400, with multiple doji candlestick formations highlighting demand absorption and the formation of a potential price base.
This behaviour indicates that selling pressure is gradually diminishing, while buyers are cautiously stepping back into the market.
Momentum indicators are also starting to align with a positive outlook. Notably, the weekly MACD is approaching a bullish crossover, which, if confirmed, could mark a shift in medium-term momentum in favor of the bulls.
The recent stabilization following a sharp corrective phase further strengthens the argument for a near-term relief rally.
As long as the index manages to sustain above the 24,400 support level, the short-term bias remains constructive. Under this scenario, the index could advance toward the 26,700 level, with a further upside extension toward 27,250 possible in the near term if momentum continues to improve.
First published in Financial Express.