Weekly Bearish Engulfing at All-Time Highs: Nifty’s Broader Trend Under Pressure

Market Overview

The Indian equity market witnessed a sharp shift in sentiment as the Nifty registered a decisive weekly correction, ending five consecutive sessions in the red and erasing the entire gains of the previous six weeks. Rising global uncertainty and persistent risk-off cues weighed heavily on investor confidence, culminating in the formation of a bearish engulfing pattern on the weekly chart at all-time highs, a technically significant signal that places the broader trend under pressure.

Selling pressure was broad-based, with all major sectoral indices closing lower for the week. The benchmark index is now trading near a crucial make-or-break zone, defined by the confluence of the 20-week Exponential Moving Average (EMA) and the 100-day EMA. Price action during the latter part of the week clearly reflected strong supply, as every intraday recovery attempt was met with aggressive selling.

The Nifty declined 193.55 points to close at 25,683.30, marking its steepest weekly fall in six weeks. This sharp reversal signals a loss of bullish momentum and raises the probability of a deeper corrective phase if key supports fail to hold.

Technical Analysis: Trend Weakens at Higher Levels

From a technical perspective, the index has closed below the previous day’s high for five consecutive sessions, highlighting sustained distribution and a shift in near-term market control toward sellers. The decisive breakdown below the 25,700 demand zone has further intensified downside risks.

The emergence of a bearish engulfing candlestick at record highs is particularly concerning, as such patterns often precede trend reversals or extended consolidations. The index is now hovering around the 20-week EMA and 100-day EMA, a zone that carries significant technical importance. A sustained breach below this region could tilt the broader trend decisively bearish.

Adding to the negative bias, Nifty is trading below its 20-day and 50-day EMAs, both of which are now likely to act as immediate overhead resistance. The 25,900–26,000 range, which previously functioned as a strong demand zone, has decisively flipped into a major resistance band. As long as the index remains below this zone, the risk of follow-through selling remains elevated.

Momentum indicators also reflect weakening strength. The Relative Strength Index (RSI) has slipped below the 40 level, signalling the emergence of bearish momentum. On the downside, 25,600 is the immediate support to watch. A decisive break below this level could accelerate the decline toward the 25,350 zone. A sustainable recovery would require a strong close above the 26,000–26,100 region to revive bullish confidence.

Derivatives Snapshot: Sellers Retain Control

The derivatives setup reinforces the cautious-to-bearish undertone visible in the cash market. Call writers have aggressively added fresh positions at at-the-money and nearby strikes, effectively capping near-term upside potential. In contrast, put writers have unwound positions and shifted exposure to lower strikes, indicating expectations of limited rebounds rather than a meaningful reversal.

A substantial open interest build-up of nearly 1.19 crore contracts at the 25,500 put strike establishes this level as an important near-term support. On the upside, the addition of around 2.15 crore call contracts at the 26,000 strike reinforces this level as a strong resistance ceiling. The Put-Call Ratio (PCR) has slipped to 0.48, entering oversold territory and reflecting heightened caution. While this may allow for brief short-covering rallies, the broader derivatives structure continues to favour sellers.

Market Outlook: Sell-on-Rallies Strategy Likely to Prevail

The Nifty’s broader trend has turned distinctly cautious following the breakdown from its demand zone and the formation of a bearish engulfing pattern at all-time highs. The slip below key short- and medium-term moving averages has rendered the overall structure fragile, while the swift erosion of recent gains has dented market confidence.

The formation of lower highs, coupled with the rapid absorption of intraday recoveries, highlights persistent selling pressure at elevated levels. The 25,600 zone now assumes critical importance, supported by the confluence of the 20-week EMA and the 100-day EMA. Failure to defend this area could open the door for a deeper correction toward 25,350.

On the upside, any meaningful revival in bullish positioning is likely only above the 26,100 mark. Until such confirmation emerges, a sell-on-rallies approach is expected to remain the dominant strategy in the near term.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Source: Market data and technical analysis.