Nifty Nearing Bottom? 5 Key Indicators to Watch

After a 10-day losing streak, Nifty has experienced its longest decline in recent times, marking a 16% correction from its September highs. This is now the 6th largest drop since the 2008-09 financial crisis and the second-largest since the Covid-led market crash in 2020. Here are the top 5 reasons why this decline could be nearing its end: 

1) Entering a Crucial Support Zone

Nifty has now entered a critical support range, as defined by the 100-week Moving Average Envelope (+/-3%). Historically, this range has acted as a strong support level, containing market downturns except in extreme cases like the Covid crash. This suggests that the index may be approaching a durable bottom.

2) RSI Signals an Oversold Market

The 14-week Relative Strength Index (RSI) has dropped into the oversold ‘bull market’ zone (33-40). According to historical data, 87% of past corrections that reached this RSI level resulted in a market trough followed by a recovery.

3) Market Breadth at Extreme Lows

Breadth indicators for the NSE500 index have hit extreme lows, with only:

• 7.6% of stocks trading above their 50-day moving average,
• 6.2% above their 100-day moving average, and
• 10.1% above their 200-day moving average.

These levels are similar to those seen during the Covid crash. Historically, such extreme readings in market breadth have often preceded market bottoms.

4) Historical Trends Support a Rebound

Patterns from past market cycles indicate that odd-numbered years and years following U.S. presidential elections have typically seen strong market performance. The Nifty has risen in 75% and 83% of such cases, respectively, delivering median returns of 17.1% and 21%.

5) Valuations Indicate Possible Opportunities

Valuations across various sectors have now dropped below their 1-year and 5-year averages. 

Conclusion

While market movements remain uncertain, key technical and historical indicators suggest that Nifty could be approaching a stabilisation phase. However, investors should remain cautious and consider multiple factors before making any financial decisions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.