Nifty50 touches key 200-day Exponential Moving Average (DEMA): Will this level fuel upside similar to past trend?

Amid the relentless sell-off, with one or the other factor coming to impact the D-Street negatively, the key bluechip Nifty50 index has touched the 200-day Exponential Moving Average (EMA) recently. At the last count, Nifty50 was down 0.8 per cent or 188.05 points at 23,330.45, while at the day's low it hit levels 23,263.15.

Now amid sharp slump, the key index has corrected as much as 11 per cent from the peak of 26,277.35 levels, hit on September 27 this year. The EMA is a guide that tracks the average performance of the Nifty index over the past 200 days. Investors use it to identify long-term trends and gauge market momentum.

As per Bajaj Broking, whenever Nifty touches 200 Days EMA and above ( Nifty tested the long-term average recently on 13th November 2024),  it is often indicative of an opportunity for positive returns in the months ahead. History shows strong returns over the medium to long term after such events,  thus needing investor attention.

And every time the level has been reached, the returns have been positive in 10 out of 11 instances taking 1 year as the time period.  The one time that was the exception was the Covid-19 crash.

Additionally, since 2018, 12 times Nifty touched its EMA and it delivered average returns of:

+3.0% after 1 month
+5.5% after 3 months
+9.3% after 6 months
+17.6% after 12 months

Post this the likelihood of positive returns grows over time which are as below:

58% chance of gains within 1 month.
83% chance within 3 months.
91% chance within 1 year.

Expert view

Jigar S. Patel, Sr. Manager- Equity Research at AnandRathi said, "

Over the last two months, Nifty has experienced a sharp correction, shedding nearly 3000 points from its peak, translating to an 11.3 per cent decline. Currently, it is trading near the 23,350 mark and is positioned below its 200-day Exponential Moving Average (DEMA), which stands at 23,540."

In today’s session, Nifty tested a bullish trendline that aligns closely with the 200 DEMA, indicating a critical juncture for the market. The Relative Strength Index (RSI) is in the oversold zone, signalling potential exhaustion in the recent downtrend. Going forward, if Nifty manages to close above the 23,800 level on the daily chart, it may suggest that the market has established a bottom and could start recovering. In such a scenario, key resistance levels would be at 24,200, followed by 24,500. On the downside, immediate support is seen at 23,300, with a further cushion at 23,000, making these levels crucial for traders and investors to monitor, added the expert.

Rupak De, Senior Technical Analyst, LKP Securities looking at the technical set-up said, "In the short term, sentiment remains weak, with support placed at 23,200. A fall below this level could trigger a correction in the market. On the upside, resistance is placed at 23,550; a decisive move above this level might induce a rally in the market."