Nifty Drops 2.45% After Fresh Highs as Technical Breakdown Signals Further Weakness
Nifty fell 2.45% to 25,683.30 while Sensex dropped 2.55% to 83,576.24 in one of the sharpest weekly corrections in recent months. Technical analysis reveals breakdown of Adam and Adam Double Top pattern with support at 25,450 level. SBI Securities recommends defensive approach while identifying IT and banking sectors as potential January outperformers based on seasonal trends and relative strength.
*this image is generated using AI for illustrative purposes only.
Indian equity markets witnessed a sharp correction this week, with benchmark indices giving up earlier gains after hitting fresh highs. The decline was driven by weak global cues, growing uncertainty around trade policies, and sustained foreign institutional investor selling pressure.
Market Performance Overview
The weekly performance highlighted the severity of the correction across major indices:
| Index | Closing Level | Weekly Decline |
|---|---|---|
| Sensex | 83,576.24 | -2.55% |
| Nifty | 25,683.30 | -2.45% |
The decline marked one of the steepest weekly corrections in recent months, with broader markets underperforming and highlighting a clear risk-off sentiment among investors.
Technical Analysis and Key Levels
Sudeep Shah, Vice President and Head of Technical and Derivatives Research at SBI Securities, provided detailed technical insights on the market's current structure. The Nifty's decline carries significant technical implications, having confirmed a neckline breakdown of an Adam and Adam Double Top pattern.
The index has decisively slipped below its 20-day and 50-day exponential moving averages (EMA), with the 50-day EMA support that held firm on four occasions since October finally giving way. Currently hovering near its 100-day EMA, momentum indicators have turned visibly weak.
Critical Support and Resistance Levels
| Level Type | Price Range | Significance |
|---|---|---|
| Immediate Support | 25,500-25,450 | Key near-term support zone |
| Downside Target | 25,200 | Potential decline if 25,450 breaks |
| Resistance Zone | 25,900-25,950 | Recovery attempts likely to face resistance |
The daily RSI has slipped below the 40 mark for the first time since September and continues trending lower, a combination that rarely goes unnoticed by market participants.
Banking Sector Weakness
Bank Nifty managed to outperform frontline indices despite closing nearly 1.50% lower. However, the weekly chart shows formation of a Dark Cloud Cover candlestick pattern, indicating a potential shift from bullish to bearish sentiment.
The banking index has slipped below its 20-day EMA, with momentum indicators turning soft. The zone of 58,700 to 58,600 will act as critical support, with sustained moves below 58,600 potentially accelerating decline towards 58,000 and 57,500.
Individual Stock Spotlight: Trent's Sharp Decline
Trent experienced a massive decline of approximately 8% during the week on concerns over rising competition and growth deceleration. The company reported revenue growth of 17%, significantly below management's earlier guidance of 25%. Technical analysis shows the stock has been in a lower high, lower low formation since hitting 8,345 on October 14, dropping nearly 52% from those levels.
Sector Outlook and Strategy
Shah recommends staying cash-rich for the next couple of trading sessions given the current chart structure of both frontline and broader market indices. However, he identifies several sectors showing relative strength that could outperform if follow-through buying emerges:
- Defence
- PSU banks
- Information Technology
- Automobiles
- Pharmaceuticals and healthcare
- Financial services
For the IT sector specifically, seasonal trends support potential outperformance. Over the past 21 years, the IT index has ended January in positive territory 14 times, with an average gain of 6.23% in the month leading up to the Union Budget.
Market Catalysts and Future Triggers
Several factors could potentially help markets break above the 26,300 resistance level. These include improving corporate earnings in Q3, accommodative monetary policy from the RBI, renewed foreign institutional inflows, easing geopolitical tensions, and market-friendly announcements in the upcoming Union Budget.
Foreign institutional investors have turned net sellers again, with withdrawals of nearly ₹1.84 lakh crore over the past six months, signaling subdued conviction amid trade uncertainties, a stronger US dollar, and rupee weakness.
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