It took 8 days for the Nifty to swing higher from the lower Bollinger Band to the upper Bollinger Band, and in just another 6 days, we are close to the lower Bollinger Band again. Except for an indecisive day on August 25, the declines have been large.
The Nifty’s August low of 24,337 is precariously poised. A break of this could expose 24,077, the 200-day moving average, and the Fibo support of 23,860. Meanwhile, only 81.4% of Index future positions are held as shorts; the bearish positioning is at an extreme, expecting the worst.
But it has been short for a while, and traders have been anticipating a reversal from such an extreme, which could lead to the Nifty heading higher. September has a bit of history favouring upsides if Nifty enters the month on a low base, given the last two months’ declines.
Let us see how the broader market is positioned towards this end.
Broader market turns lower
Despite last week’s persistent selling and Friday’s sharp plunge lower, the VIX ended 3% down. Either the VIX is increasingly turning out to be a poor indicator of volatility, or traders are not expecting a collapse, and the systematic slippage is along expected lines.
The Nifty Realty, Media, IT, Oil & Gas, and Energy indices are already trading below their respective 200-day SMAs, with the Nifty Realty Index the farthest from the key long-term average. Meanwhile, the Nifty IT, Consumer Durables, Auto, and FMCG indices have either newly broken below or are just about to break below the 10-day moving average, which suggests that despite holding firm for the most part during last week’s bearish onslaught, they gave away on Friday.
It could also be argued that since these were the sectors that showed strength recently, they could also be the ones that could show a pullback at first sight of Nifty’s reversal. Meanwhile, the FMCG Index has the largest number of constituents above the 10-day SMA, while the Bank Nifty, Financial Services, Metal and Realty indices have none of their constituents trading above their respective 10-day SMAs.
Sectoral cues
Realty Index under pressure as bearish signals intensify
The Nifty Realty Index recently attempted a reversal but faltered, culminating in a prominent bearish candle on the daily chart. A decisive break below the 61.8% Fibonacci retracement level at 875, coupled with a prior MACD signal line breach, suggests mounting downside risk.
Derivative data further confirms the bearish tone: all constituent stocks have seen a short build-up in near out-of-the-money (OTM) call options. On Friday alone, over 80% of these stocks recorded fresh short positions, with nearly 50% showing similar trends over the week—highlighting sustained negative sentiment.
Given this technical and derivative setup, the index appears poised to slide toward the 830 mark in the near term. Selling pressure is likely to be led by key players such as DLF, Lodha, Oberoi Realty, Prestige Estate Projects, and Brigade Enterprises.
FMCG Index set for breakout backed by derivative momentum
The Nifty FMCG Index has been trading within a tight range since May, but weekly technical indicators now point toward a potential breakout. Derivative trends reinforce this outlook, with nearly 80% of constituent stocks showing short build-up in near out-of-the-money (OTM) put options. Furthermore, 55% of stocks witnessed long positions added on Friday, with over 35% showing similar strength over the week — signalling bullish sentiment among traders.
We anticipate the index to breach its current consolidation zone and advance toward the 58,160–58,200 level. This upward move is likely to be driven by heavyweight stocks such as ITC, Britannia, Dabur, Tata Consumer, United Spirits, Marico, and Colgate-Palmolive, which collectively represent around 47% of the index composition.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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