The Nifty 50 witnessed one of its sharpest declines in the September series in recent years, registering a fall of 1,618 points or 6.6%.
The Nifty opened with a gap down and slipped to an intraday low of 22,569.65 within the first hour of trade. However, the index recovered from the lows and remained within the opening hour’s range for the rest of the session. It finally closed at 22,716.20, down 64.05 points or 0.28%, after recovering more than 140 points from the day’s low.
Hammer formation indicates selling pressure may be losing momentum
Tuesday’s price action resulted in the formation of a hammer-like candlestick pattern, with a long lower shadow and a small real body near the upper end of the trading range. This pattern generally indicates that buyers emerged at lower levels after initial selling pressure.
A hammer formation after a prolonged decline can indicate a possible short-term reversal, as it suggests that bears were unable to sustain lower levels. However, confirmation in the following session remains important before considering it a reliable reversal signal.
Trading volumes were the highest since August 31, indicating increased participation during the recovery from lower levels. As long as Tuesday’s low remains protected, the index may witness some buying interest at lower levels.
Oversold indicators suggest scope for mean reversion
Market breadth remained negative, with more stocks declining than advancing, while trading volumes were higher compared with the previous session.
The Nifty closed below the lower Bollinger Band, which often indicates that the index has moved significantly away from its recent average range. After such sharp deviations, markets generally tend to move towards mean reversion, although the timing and strength of the recovery remain uncertain.
The index is currently trading around 5.08% below its 50-DMA, highlighting the extent of the recent correction. Additionally, the 14-period daily RSI is in oversold territory.
Key levels to watch ahead
The low of Tuesday’s session at 22,569 will be the immediate support level for the Nifty. A sustained break below this level could lead to further weakness, with the index potentially moving towards the next support zone of 22,283–22,182.
On the upside, a move above Tuesday’s high of 22,753 would provide initial strength and could support a short-term recovery for the next few sessions. In a positive scenario, the index may attempt to retest the previous breakdown zone near 23,070, which also coincides with the 8-day exponential moving average.
For now, traders should closely monitor the 22,569 support level. As long as the index holds above this mark, aggressive fresh short positions may be avoided. A sustained move above immediate resistance levels, along with confirmation of the hammer pattern, could open the possibility of a pullback rally.
Stock to Watch: Mahindra Logistics
Mahindra Logistics is showing signs of strength after closing near the pivot level of its 9-week flat base formation. The stock has witnessed higher volumes over the past two weeks, indicating increased buying interest. Its Relative Strength (RS) line has moved to a new high, reflecting outperformance compared with the broader market.
The technical setup remains positive, with both short-term and long-term moving averages trending upwards. The Bollinger Bands are also rising and expanding, suggesting increasing momentum, while the moving average ribbon continues to indicate a sustained uptrend.
Momentum indicators are supporting the bullish view. The weekly MACD has generated a fresh bullish crossover, while the daily MACD remains in positive territory. Both weekly and daily RSI indicators have entered the bullish zone, highlighting improving strength.
The stock is currently positioned near a potential breakout point. A sustained move above ₹433 could trigger a breakout from the base formation and may push the stock towards ₹465. Traders can maintain a stop loss at ₹410. A decisive move above ₹465 may further open the upside towards ₹488.
