Nifty’s longest losing streak in 25 years has pushed the benchmark into a critical technical zone, leaving investors to decide whether the sell-off is nearing exhaustion or has further to run.

The index has breached its 200-week moving average and slipped below the crucial 22,600 level for the first time since the Covid crash. While history offers examples of both sharp rebounds and deeper declines after such breakdowns, LKP Securities’ Senior Technical Analyst Rupak De says investors should remain cautious, reduce high long exposure and wait for a decisive move above 22,600 before adding back positions. If the level continues to cap gains, Nifty could eventually head towards 20,500.

Edited excerpts from a chat:

Nifty has now entered its eighth consecutive weekly decline, the longest losing streak in 25 years. Does the market have a tendency to bounce back sharply after such consecutive declines?

It is a tendency of the market to rise back higher after a contentious correction. At some point, investors will say, “Enough is enough, let’s get into the market.” And this perception becomes contagious and lifts the market like a phoenix rising from the ashes.

But the real question here is: after registering eight consecutive weekly declines, will the market reverse the trend in the 9th week, the 10th week, or maybe after the 12th week?

For disciplined investors who invest regularly during market declines, this type of continuous fall appears to be a boon. But for short-term traders and MTF traders, timing and market positioning are the most important things.

For short-term and MTF participants, 22,600 will be a very important level to watch. If it doesn’t reclaim 22,600 anytime soon, the pain may persist, and more correction may come below 22,200, which might be more severe.

So, cutting down on high long exposure will be a good idea as long as Nifty remains below 22,600. Adding back longs might be better when Nifty moves back above 22,600 decisively.

Nifty has fallen below the 200-week moving average for the first time after the Covid crash. Now, this is not a normal breakdown. Let me tell you why. In 2020, the Nifty fell 27% after it slipped below the 200WMA. In 2008, Nifty fell by 38% after slipping below the 200WMA. So, is a big fall coming? Not an easy call yet.

Just when you have decided to sell everything after seeing the past two cases, I have a spoiler for the bears. In 2011, 2013 and 2016, Nifty broke below the 200WMA but reversed quickly after a 2–6% correction.

So, I don’t think you should take anything for granted. Trade level-wise and remain active. As long as Nifty remains below 22,600, there is a high chance that Nifty might test 20,500. However, that might not come straightaway, and periodic bounces might come, which should be used to reduce long trades. On the other hand, market sentiment might start improving, and investors are likely to come back.

Market breadth has deteriorated sharply, with mid- and small-caps also coming under pressure. What are the advance-decline ratio, 52-week low data and breadth indicators telling you about the next phase of the correction?

It started with no AI participation by India, US tariffs, then the US-Israel-Iran war leading to a rise in crude oil prices, and lately, a sharp rise in the US 10-year bond yield. All these things have led to massive outflows of FII money. In dollar terms, Nifty’s performance has been even worse, leading to FPI apathy towards the Indian market. On top of that, the fall in the spread between the US and India 10-year bond yields is taking money away from the Indian market. So, breadth has been weak for so many months, which might remain weak in the days to come. It is only government intervention on the capital gains tax front or more intervention by the RBI that might improve the overall Indian market sentiment.

How would you go about trading PB Fintech stock that’s down 50% from peak in just a matter of a few days?

The stock has corrected heavily lately on the back of a news-driven fall. The stock has broken down below medium-term support, and further correction looks possible. Looks like more pain is waiting, and entering the stock at the current market price is not looking worthwhile technically.

How do you read the sell-off in auto stocks after the monthly sales data went below expectations?

Most of the auto stocks were not doing great in the recent past. In fact, weakness was already visible in most of the auto stocks, both four-wheelers and two-wheelers. Technically, auto stocks were not looking great, apart from very few. And weaker-than-expected sales numbers just amplified that view. Now, almost all the auto counters are looking very weak. Some are near their support, but the chances of breaking the support look higher. Therefore, avoiding the space for the time being would be a good idea.

Give us your top trading ideas of the week.

Sell ADANIPORT Below 1730 SL 1760 TGT 1670 (Spot Levels)

The stock has reversed its near-term trend by closing meaningfully lower after a positive breakout two days ago. The Daily RSI has turned into a bearish crossover. Sentiment around the stock has suddenly turned bearish and might weaken further below 1,730. Selling below 1,730 (spot) looks like a good trade. On the lower end, it might move down towards 1,670 and possibly below that. On the higher end, resistance is placed at 1,760.

Buy NYKAA Abovee 325 SL 314 TGT 343

The stock has found support at the previous congestion low, leading to a higher closing. On the daily chart, a Piercing Line pattern has formed. The hourly RSI is in a positive crossover and is coming out of the near-oversold zone. Positive divergence is also visible on the hourly RSI. Looks good for near-term positive gains.

Sell LT Below 3689 SL 3740 TGT 3600 (Spot Levels)

The stock has fallen below the previous swing low on the daily timeframe, heightening the risk of further weakness. The price has just filled the previous visible gap; however, that doesn’t by default make it a reversal point, contrary to popular belief. The sentiment looks weak, and the theory of price falling to fill the gap works in a bull market, not in a market like this. So, I expect further weakness if it falls below 3,689 again.

Disclaimer: This article has been written by Nikhil Agarwal, who is not a SEBI-registered Research Analyst or an Investment Adviser. Nikhil Agarwal and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.