Theequity benchmark indices for the second consecutive week. The Nifty declined by 367.20 points or 1.44 per cent. The BSE Sensex is down by 1.12 per cent. The broader market indices Midcap-100 and Smallcap-100 also declined by 1.74 per cent and 1.42 per cent, respectively. The FMCG gained by 2.15 per cent, and the Private Bank index was up by 0.03 per cent. On the flipside, the Nifty IT is down by 3.76 per cent. The Metal and Auto indices declined by 2.06 per cent and 2.03 per cent, respectively. The India VIX fell by 7.57 per cent to 11.82. The FIIs sold Rs10,284.18 crore and the DIIs bought Rs12,402.98 crore this month.

The Nifty declined for the second consecutive week. It closed below the previous week’s low. Importantly, it closed below the 38.2 per cent retracement level of the prior upswing, decisively. Although the volumes have declined over the past two weeks, consider this a counter-trend. The reversal signs are very strong, as last week’s open-high candle gets the confirmation for its reversal implications. The momentum is picking up on the downside.

The Nifty almost tested the prior breakout level of 25116. In any case, if it closes below this level, it will register a confirmed failure breakout. On Friday, the index opened with a gap down and closed at the low of the day with a higher volume. With this, it added a distribution day. Currently, it holds three distribution days. If the index declines below the 50 DMA of 24955, and adding another two distribution days, means that the market has entered into a confirmed downtrend.

The earnings and news flow will dominate the market for the next month. The earnings are expected to be stagnant, and the tariff news is going to rattle the market as the Indo-US tariff deliberations are still in process. As the deadline is nearing, it is expected anytime from now. Secondly, the earnings by big boy TCS were disappointing, and we expected more such earnings degrowth on cards. The Healthcare, Speciality chemicals, and FMCG sectors may give pleasant surprises.

The volatility index, India VIX, is at its lowest range of 10-12. It has an inverse relationship with the index. Any bounce in VIX results in a sharp decline in the index. On a weekly closing basis, the index is at its lowest after April 2024. After this lowest level, the index witnessed a highly volatile swing till the General election results. Whenever VIX is at the lower band, expect high volatility moves.

In these conditions, the Nifty is approaching a critical support of 50 DMA of 24955. The rising trendline support drawn from 9th May is also at a similar level. If the index declines below this crucial support, the prior six-week consolidation bottom of 24494 is the final support. Below this, the market will enter into a medium-term downtrend. For an upside, the index must close above the 20 DMA first. Then it must clear the recent high of 25669, to reach the new all-time high.

Stay alert on the price move and watch earnings closely. Focus on only 20 per cent growth stories. The sector rotation plays an important role. Avoid building fresh longs as long as the Nifty trades below the 20 DMA. Stay with a neutral to negative bias for the coming week.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)