Technical momentum indicators are painting a concerning picture for Indian equities, with the majority of Nifty 500 stocks showing signs of weakness following the recent market selloff. According to ICICI Securities analysis, broad-based selling pressure has significantly deteriorated market breadth across the country's top 500 shares.

Technical Breakdown Reveals Widespread Weakness

The data reveals a stark deterioration in technical indicators across the Nifty 500 universe:

When stocks trade below the 50-day moving average, it reflects a loss of short- to medium-term momentum, representing the average closing price over the past 50 trading days. Similarly, trading below the 200-day moving average signals a weakening long-term trend, suggesting sellers are dominating across sectors.

Market Performance and Breadth Deterioration

Dharmesh Shah, head of technicals at ICICI Securities, noted that "over the past week, broader selling pressure has weakened the market breadth further." The Nifty index has declined nearly 2% since reaching all-time highs on January 5 and dropped 2.5% in the past week, closing at 25,732.30 on Tuesday with a 0.2% decline.

The contrast with earlier market conditions is particularly striking. When the Nifty hit record highs earlier in January, 54% of stocks in the Nifty 500 universe were trading above both the 50-day and 200-day moving averages, indicating healthy broad-based participation in the rally.

Sector-Wide Pressure and Small-Cap Vulnerability

Nilesh Jain, head of derivatives and technical research at Centrum Broking, explained that "the market witnessed corrections for five consecutive sessions last week, given the lack of clarity on the India-US trade deal and the global uncertainties." The small-cap segment appears particularly vulnerable, with the small-cap index trading below both long-term and short-term averages.

Jain advised investors to "avoid small-cap stocks and focus on large-cap stocks where the margin of safety is higher," emphasizing the defensive positioning required in the current environment.

Approaching Oversold Territory

Despite the current weakness, analysts see potential opportunities emerging. Shah highlighted that "with only 30% of Nifty 500 stocks now trading above the 50-day SMA, we are approaching oversold territory, which can be a good opportunity for investors to buy quality names with strong earnings, with a medium-term view."

Historical analysis suggests that market breadth typically bottoms out when the percentage of stocks above the 200-day moving average falls below 15%, while rallies tend to exhaust themselves only when this figure climbs near 90%. This provides a framework for understanding potential market turning points.

Near-Term Outlook

While technical indicators suggest continued pressure, analysts expect some relief in the near term. Jain noted that "while a pullback or dead cat bounce is likely, a decisive up-move is not anticipated currently." The extreme readings in moving average indicators could signal potential trend reversals, though sustained recovery will likely require resolution of underlying concerns affecting market sentiment.

The Indian equity market ended largely in the red on Tuesday, though it managed to recover sharply from intraday lows. The Nifty 50 held above the crucial 25,700.00 mark despite sustained selling pressure through most of the session, closing at 25,732.00 with a decline of 57.00 points.

Market Performance and Trading Pattern

The Nifty demonstrated significant volatility during the trading session. The index opened 107.00 points higher and briefly tested its 50-day exponential moving average resistance near 25,891.00 before reversing course. Bears remained in control for the better part of the session, pushing the index down to an intraday low of 25,603.00.

A late rebound of more than 150.00 points in the final hour helped limit losses and pull the index off the day's lows, demonstrating resilience in the face of selling pressure.

Individual Stock and Sectoral Performance

In the Nifty basket, ONGC, Eternal, and ICICI Bank led gains, while Trent, Larsen & Toubro, and Dr Reddy's witnessed selling pressure to end as top losers. Sectoral performance presented a mixed picture across different segments.

The broader market indices showed divergent trends. The Nifty Midcap 100 index slipped 0.20%, but the Smallcap 100 index defied the overall trend with a 0.60% gain.

Upcoming Market Events

Market attention will shift to earnings reports from several major companies including:

• Infosys
• Groww Venture
• HDB Financial Services
• HDFC AMC
• ICICI Prudential AMC
• Indian Overseas Bank
• Waaree Renewables Technologies
• Union Bank of India
• Anand Rathi Share And Stock Brokers

Wednesday's trading session will also see the allotment of the ₹1,071.00 crore IPO of Bharat Coking Coal Ltd., a wholly-owned subsidiary of Coal India Ltd.

Technical Analysis and Expert Views

Nagaraj Shetti of HDFC Securities sees scope for an upside move from current levels, with the Nifty likely to overcome the 25,900.00–26,000.00 resistance zone in the coming sessions. He places immediate support at around 25,600.00.

Ajit Mishra of Religare Broking noted that markets remained volatile on the weekly expiry and ended marginally lower amid mixed cues. He observed that market movements continue to reflect a tug of war between earnings-driven reactions and global uncertainty. Religare Broking maintains a cautious stance on the Nifty and recommends a sell-on-rise strategy until the index decisively reclaims the 26,000.00 mark.

A clear break below the medium-term 100-day EMA near 25,600.00 could deepen the correction toward the 25,400.00 level. Nandish Shah of HDFC Securities emphasized that the Nifty needs to cross its 50-day EMA near 25,900.00 to regain momentum, while the recent swing low of 25,473.00 is expected to provide near-term support.