TheNifty logs its sixth consecutive weekly decline after the 2020 COVID crash. The Nifty is down by 202.05 points or 0.82 per cent, and the BSE Sensex declined by 0.92 per cent. The broader market continues to underperform. The Midcap-100 and Smallcap-100 indices are down by 1.12 per cent and 1.36 per cent, respectively. On the sectoral front, the Media index only gained by over one per cent. The Metal and Auto indices advanced by 0.49 per cent and 0.27 per cent, respectively. On the flip side, the Pharma is down by 2.77 per cent. The Realty and FMCG indices declined by 2.45 per cent and 2.31 per cent, respectively. The Energy, FinNifty, Banknifty were down by over one per cent. The India VIX is up by 0.48 per cent to 12.03. The broader market breadth is negative. The FIIs have sold Rs.14,018.87 crore, and the DIIs bought Rs.36,795.52 crore worth of equities in this month.

The Nifty declined for six consecutive weeks. This is the longest streak after February and March 2020. After retracing 87 per cent per cent of the prior fall, the index made a major lower-high at 25669. The prior decline was 17.25 per cent from the all-time high of 26277. The rise from 21743 is 18.05 per cent. The index failed to form a new all-time high and declined. Currently, the index is trading below all key averages, except the 200 DMA. The 200 DMA is placed at 24042. Prior to that, the 50-week average is at 24203. The 38.2 per cent retracement level of the prior upswing is at 24169. For now, the fall may halt at this crucial support zone of 24042-203.

As the index witnessed its longest streak of decline, there is a high probability of a technical bounce from the crucial support. Before testing below 24000 levels, the index may bounce from the 24169-203. The bounce may be one or two weeks and may test the 20DMA of 24871. Normally, the counter-trend rallies end at 38.2 per cent retracement levels, which is the 24738-850 zone. In any case, the rally extends, the recent swing high of 25222 is also a 61.8 per cent retracement level, which will be the maximum target for the index. In such a scenario, the price structure will change and form a new pattern. The 25222 will be right shoulder’s high. A decline will be sharper. This new leg of decline below 24462 will result in a head and shoulder pattern breakdown. The target for this breakdown would be 23243. This zone is nothing but a 61.8 per cent retracement of the prior upswing from 21743 to 25669. This target can be achieved by October 2025, with a high probability.

In the most bullish case scenario, if the Nifty bounces from the 200 DMA support and breaks above 25669, the new target will be achieved by the Jan-March quarter of 2026. Last week’s volumes were higher than the previous week’s. Currently, the index is holding six distribution days. As the trading is below the key averages and has formed a series of lower highs and lower lows on a daily chart, the index is in a confirmed downtrend.

The weekly Relative Strength Index declining below 50 is a sign of weakness. The daily RSI is already in the bearish zone. The weekly MACD has given a fresh bearish signal, and the daily MACD has been below the zero line for the past two weeks. Importantly, the index is now below the Anchored VWAP support.

The market needs clarity on the impact of US tariffs. It may take another quarter to assess the actual impact, where the next quarter’s earnings will depict the sales and margins of the companies doing business with the US. According to recent economic forecasts, the current tariffs could result in a drop in US GDP, slower global growth, and increased inflation through mid-to-late 2025. Overall, the next round of earnings releases is anticipated to provide concrete evidence of how tariffs have influenced sales, input costs, and corporate profitability for companies involved in US trade.

The volatility index, India VIX, is still at the lower range. This is a big negative for the bullish bets. A spurt in the VIX will result in a big fall in the index, as it has an inverse relationship. If the index reaches above 15-17 levels, expect the index to test the pattern target of 23243. It is necessary to watch the VIX movements from now on.

Overall, the traders must be cautious and defensive. It is advised to avoid fresh long positions as long as it trades below the 20 DMA. For next week, only four trading sessions will be available as the 15th of August is a holiday.

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