Though Nifty sank 0.78% below its 10-day SMA, following an alarming drop in the closing hour of Friday, several sectoral indices continue to keep their neck above this key SMA, suggesting that positivity lingers. While the Nifty Financial Services, FMCG, Oil & Gas, Pharma, and Consumer Durables indices have slipped below the 10-day SMA, sectors such as Realty, Media, PSU Banks, Metals, IT, Energy, and Auto continue to trade above this level. Both mid and small-cap indices are above this key SMA. Further, 45% of Nifty 500 stocks are trading above their respective 20-day SMA, as opposed to just 41% in the previous week. This suggests that more stocks are on the upmove.
Meanwhile, Foreign Portfolio Investors’ (FPIs’) hand during Friday’s closing sell-off becomes clearer when you look at their index futures positioning. Though their index future short positions ended up at 2,33,033 contracts, 13% lower than the previous week’s closing, Friday saw a whopping 15% hike in short positions. This was accompanied by an 18% cut in index future long positions on Friday, which ended at 31,724 contracts. This dragged their long-short ratio to 12 from a mid-week peak of 16.7.
Against this backdrop, we have highlighted two sector-specific trends below.
Bearish reversal signals emerging in the pharma index
The Nifty Pharma Index is beginning to exhibit early indications of a potential short-term trend reversal following an extended phase of strong upward movement. On the daily timeframe, price action has turned cautious, as evidenced by the formation of a large bearish candlestick. This development, when viewed alongside a breakdown in the MACD signal line, clearly points toward a weakening of bullish momentum. The shift suggests that buying interest is gradually fading, while supply-side pressure is starting to gain dominance, increasing the likelihood of a pullback.
Looking at the broader structure, the weekly chart adds further weight to the emerging bearish narrative. The recent price formation closely resembles an “evening star”-type candlestick pattern, a classic reversal signal that often appears at market tops. In addition to this, MACD histogram readings are beginning to print exhaustion bars, indicating that the strength of the prevailing uptrend is diminishing. Such divergences between price movement and momentum indicators are often precursors to corrective phases or consolidation periods.
From a derivatives standpoint, market positioning further reinforces the cautious outlook. Approximately 60% of near-out-of-the-money (OTM) put strikes have witnessed long build-up, which typically reflects increased hedging activity or expectations of downside risk among market participants. Concurrently, close to 85% of the near OTM call strikes are witnessing fresh short build-up, reflecting aggressive call writing by traders. This suggests that traders are actively positioning for limited upside and are effectively capping any potential near-term rally.
Overall, the convergence of bearish cues across daily price action, weakening weekly momentum, and derivative data points to a strong possibility of either a corrective move or a phase of sideways consolidation in the near term. Unless the index manages to swiftly reclaim recent highs with strong participation and momentum, downside risks are likely to remain elevated.
Metal index displays reversal signals near rising wedge resistance
The Nifty Metal Index is also showing clear signs of fatigue at higher levels, hinting at an increased probability of a near-term correction. On the daily chart, a strong bearish marubozu candle has formed close to the upper boundary of a rising wedge pattern. This is a significant technical development, as it indicates a decisive rejection at resistance levels and highlights the emergence of aggressive selling pressure after an extended uptrend.
From a technical perspective, rising wedges are generally considered bearish reversal patterns, especially when accompanied by a breakdown or rejection near the upper trendline. The presence of a marubozu candle, characterised by strong, uninterrupted selling throughout the session, reinforces the idea that sellers are beginning to assert control, potentially marking the end of the recent bullish phase.
On the weekly timeframe, the emergence of a shooting star candlestick further adds to the bearish outlook. This pattern typically appears near market tops and signals a failure to sustain higher levels despite initial bullish attempts. The rejection at elevated zones reflects waning buying interest and growing supply pressure. Complementing this, MACD histogram readings are showing signs of exhaustion, indicating that the underlying momentum behind the uptrend is slowing considerably.
Derivative data also aligns with this weakening technical setup. Nearly 80% of near OTM put strikes have experienced long build-up, suggesting that traders are increasingly positioning for downside protection or speculative bearish bets. Simultaneously, around 90% of near OTM call strikes have seen short build-up, which indicates heavy call writing activity. This reflects a consensus expectation that upside potential is limited in the near term, with resistance levels likely to hold.
In summary, the confluence of multiple bearish indicators, including resistance rejection at the upper boundary of a rising wedge, weakening momentum signals across timeframes, and supportive derivative positioning, points toward a strong likelihood of a near-term downside bias in the Metal Index. Unless there is a decisive breakout supported by strong volume and momentum, the index appears vulnerable to either a corrective decline or a consolidation phase.
First published in Financial Express.
