Volatility Swings: Broader Market Corrects, Late-Week Bounce, But No Breakout Yet
Nifty500 Prints New Lower Low, Breadth Still Subdued Despite Late-Week Recovery
The week was marked by significant volatility, starting with a sharp sell-off, but ending on a recovering note. The week saw investors turn cautious ahead of the US Federal Reserve’s policy meeting, which led to initial heavy selling, particularly in the broader market. The Indian rupee’s continued weakness, reaching new lows, and persistent FII selling added to the pressure. However, late-week recovery was triggered by the US Fed’s expected rate cut which uplifted global and domestic sentiment. Despite the late-week recovery, the market indices ended with a weekly decline.
Key Indices Performance:
Key Drivers This Week
US Fed Rate Cut: Initial market fall was primarily driven by investor caution ahead of the crucial US Federal Reserve’s policy meeting (Dec 9-10), with uncertainty surrounding interest rate decisions. The US Federal Reserve’s decision to cut interest rates and offer a less hawkish future outlook provided a positive global cue, triggering the market rebound in the latter half of the week.
Persistent FII Selling: Foreign Institutional Investors (FIIs) continued their selling streak
Rupee weakens against dollar: The Indian Rupee touched a new record low against the US Dollar.
Technical Perspective
Nifty 500 trend: Nifty500 showed a clear sign of weakness at the start of the week. The index broke below its short-term key moving averages (20EMA and Rising 50EMA). Despite late-week relief spurred by the US Fed’s anticipated rate cut, which allowed the index to reclaim and close above both the 20EMA and 50EMA, the index still managed to establish a new Lower Low for the period.
The Nifty500’s 10EMA crossed under its 20EMA this week, serving as a technical signal for the curtailment of Long positions.
In contrast, Benchmark indices (Nifty50 and Sensex) demonstrated relative resilience and strength by consistently respecting their respective Rising 50EMAs. Unlike the volatility seen in the broader market indices (Nifty500 or Nifty mid & small-cap indices), the Nifty50 and Sensex remain technically sound, with their major EMAs aligned in a bullish sequence (10 > 20 > 50 > 100 > 200EMA), thus reinforcing the strength and safety profile of large-cap stocks.
Looking at the broader market indices:
The Nifty MidCap150 also briefly fell below its Rising 50EMA during the mid-week sell-off, though it successfully reclaimed this level by the end of the trading week.
The Nifty SmallCap250 continues to exhibit significant weakness, forming a Lower High, Lower Low price structure. Technically, the underlying trend remains bearish, with the key short-term EMAs (10EMA, 20EMA and 50EMA) all stacked one below the other.
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 8th December triggering a ‘Curtail’ signal that suggests curtailing onto existing long positions.
As of December 12, 2025, about 41%, 25% and 25% of stocks are above their 10EMA, 30EMA, and 50EMA respectively. Last week, these readings were 23%, 21% and 23% respectively for stocks above their 10EMA, 30EMA, and 50EMA.
The surge in the % of stocks above 10EMA (from 23% last week to 41% this week) indicates return of ultra-short-term momentum in the latter half of the week, driven by the strong buying on Thursday and Friday. However, the relatively smaller gains in the % of stocks above 30EMA and 50EMA suggest that while momentum is returning, medium-term structural stability across the board remains weak, with only 25% of stocks still trading below their 30EMA and 50EMA.
The market breadth readings remain below the midpoint (50% mark), signaling that the majority of stocks are trading below short-to-medium-term trend levels, which is typically a corrective sign for the broader market.
It’s 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
Indian equities experienced high volatility, falling early in the week before recovering to reclaim key moving averages; however, the market remains in a consolidation phase and established a new Lower Low this week. The overall trend remains positive, but technical signals suggest caution.
The Nifty500 technically flashed a ‘Curtail’ signal as the 10EMA crossed under the 20EMA. While market breadth showed a slight improvement with the return of ultra-short-term momentum, medium-term structural stability remains weak, limiting broad-based participation.
Large-caps continue to lead the market, maintaining their strong structures. Given the market’s inability to establish a decisive uptrend (Higher Highs and Higher Lows), it is prudent to stick with quality, leading stocks from the strongest sectors before adopting an aggressive stance. Continued volatility is expected, with a positive resolution to the India-US trade deal seen as the most powerful catalyst for igniting a sustained rally in the coming months.