2026#03: Nifty500 Signals Caution After Failed Breakout
Nifty500 slips back into consolidation as market breadth deteriorates and only a minority of stocks hold above key moving averages.
Indian equities had a high intraday volatility but mildly positive week, with largecaps stabilizing on the back of IT strength while broader markets and the Nifty500 remained under pressure amid persistent FII selling. Strength in the IT sector, sparked by better-than-expected guidance from IT biggies, acted as a crucial cushion that prevented the broader indices from slipping into negative territory for the week.
Key Indices Performance:
While IT bellwethers provided a late-week boost due to upgraded revenue guidance, the broader market remained under pressure. Overall, indices remained largely flat this week.
Key Drivers for the Market
Q3 Earnings Momentum: The week was dominated by the kickoff of the third-quarter corporate earnings season. Major IT players and early reporters from the banking sector posted numbers that largely met or slightly exceeded street expectations. Major IT players raised their revenue guidance for the remainder of FY26. This offset the broader market sluggishness and provided the necessary weight to keep the indices in the green.
Trade and Geopolitical Cues: Ongoing uncertainty regarding potential U.S. tariffs and the pending U.S.-India trade deal kept investors from taking aggressive long positions. Any formal announcement or clarity on the India-U.S. trade negotiations could act as a significant catalyst for our market.
Pre-Budget 2026 Positioning: With the Union Budget usually presented on February 1, January is the peak month for ‘Budget trades’.
Technical Perspective
Nifty500 failed to sustain its recent breakout and entered a significant corrective phase. The failed breakout followed by a deep ‘V-shaped’ decline has altered the short-term market structure. The index is back into the consolidation phase now.
The most recent price action has established a clear Lower Low (LL), signaling a shift from a ‘buy on dips’ environment.
Weekly Perspective: The weekly chart shows that the broader bullish trend is being severely tested. This week’s candle shows a significant bearish engulfing-style movement that has erased last few weeks of gains. The index is currently resting near the Lower Low (LL) support zone established in December.
50EMA: The index could not sustain above its rising 50EMA this week and fell back in the consolidation range. Reclaiming and sustaining levels above the 50EMA is crucial to neutralize recent bearish momentum and restore investor sentiment.
Failed Recovery Attempts: Small intraday bounces have been consistently sold into, failing to reclaim previous support levels or the 50EMA.
On the downside, support is seen near 23,200-23,000. A decisive break below this zone could open room for a deeper correction.
The reason we track Nifty500 is because it represents over 90% of the free float market capitalization, making it a comprehensive barometer of market health.
Nifty500’s 10EMA crossed under its 20EMA on 12th January triggering a ‘Curtailing’ signal that suggests reduction or closure of existing long positions.
While there was a slight bounce in the shortest-term indicator from last week's lows, overall breadth remains significantly below the healthy 50% threshold.
10-Day EMA: 23% of stocks are now trading above their 10EMA, a substantial fall from 14% last week.
30-Day EMA: 22% of stocks are above their 30EMA, compared to 21% last week.
50-Day EMA: 22% of stocks are above their 50EMA, compared to 22% last week.
Medium-term weakness: Despite a minor recovery in stocks above the 10EMA, the medium-term health (30EMA and 50EMA) is stagnant at 22%. This confirms that roughly 78% of the market is still trading in a medium-term downtrend.
It is important to note that overbought or oversold signals are most relevant for swing traders, as they reflect short-term momentum shifts.
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Summary
The market remains in a weak structural state. Although the aggressive selling pressure seen at the end of last week has slowed, the anticipated 10/20 EMA crossunder occurred early in the week, confirming the shift in short-term momentum from a “buy on dips” to a “cautionary” environment. Investors are now shifting focus toward the upcoming Union Budget and ongoing Q3 earnings for any signs of a potential revival, though current technical setups demand extreme defensive positioning. With only 22% of stocks trading above their moving averages, the current environment suggests extreme caution and capital preservation.