NSE Nifty and BSE Sensex witnessed sharp correction on Friday. Markets have been hovering around all-time highs for quite some time and some market participants have turned cautious. Volatility is high across global markets and we could see further selling in Indian markets during the upcoming week. There is also a chance for recovery from lower levels, as has happened in the recent months. Every time there is a small correction, we have witnessed a rally afterwards, leading to fresh highs for benchmark indices. It will be interesting to see what happens on Monday morning session.

In the latest market developments, a combination of technical indicators and macroeconomic data suggest potential headwinds for global equities. On the domestic front, India’s Nifty index broke crucial support levels, signaling further downside risk, while in the U.S. and Europe, equity markets faced significant weekly declines. A mixed U.S. jobs report and disappointing industrial production data from Germany added to concerns, raising doubts about the Federal Reserve's next steps on interest rates. Key indicators like the MACD are also signaling bearish sentiment across multiple sectors. Below is an in-depth analysis of the market movements and key indicators.

Nifty’s Bearish Break Below Support Zones

India’s Nifty index has shown signs of increasing weakness after breaking through the critical 25,000–25,100 support zone. The index formed a bearish engulfing candle, a key technical pattern indicating downward pressure on the weekly scale. Additionally, Nifty closed below its 21-day Exponential Moving Average (DEMA), reinforcing the view that further downside may be imminent. According to Hrishikesh Yedve of Asit C. Mehta Investment Intermediates, the next significant support level stands near 24,480, where the 50-DEMA lies. Short-term rebounds, if any, should be treated as opportunities to book profits rather than signs of recovery.

U.S. Stocks Slide Amid Mixed Jobs Report

U.S. equity markets closed lower on Friday, weighed down by a labor report that indicated a continued slowdown in the jobs market. Despite weaker employment data, market participants remain uncertain about the Federal Reserve's stance on future rate cuts, further unsettling investors. All three major indexes—the S&P 500, Dow, and Nasdaq—closed in the red. The S&P 500 and Dow experienced their most significant weekly drops since March 2023, while the Nasdaq suffered its steepest decline since January 2022. Particularly, sectors like communication services, consumer discretionary, and technology led the downward trend, exacerbating market sentiment.

European Markets See Sharp Declines

European equities followed suit, posting their worst day since early August, with the pan-European STOXX 600 index dropping 1%. This decline marked the index’s first weekly drop in five weeks, down 2.5%. In Germany, the DAX index fell 1.6% to a two-week low after industrial production data showed an unexpected contraction of 2.4% for July, compared to expectations of a 0.3% drop. The weaker-than-expected data raised concerns about the broader Eurozone economy, increasing fears that further rate cuts or stimulus measures may not be enough to sustain growth.

Bearish Signals Across Key Indian Stocks

Technical indicators point to potential weakness in several Indian stocks. The MACD (Moving Average Convergence Divergence) has signaled a bearish crossover on several counters, including RR Kabel, Tata Power, Crompton Greaves, Tech Mahindra, and Allcargo Logistics. This crossover suggests that these stocks are likely at the beginning of a downward trend. Investors should exercise caution and consider adjusting their portfolios accordingly.

Market Sentiment Favors Bears

The overall sentiment in Indian markets remains heavily tilted towards the bears. On Friday, market breadth revealed that 2,649 stocks ended in the red, while only 1,307 stocks closed in the green. This broad-based decline underscores the growing pessimism among investors, as several sectors continue to exhibit signs of weakness.

What to Watch Moving Forward

As global markets struggle with mixed economic data and key technical breakdowns, investors should pay close attention to the following:

Federal Reserve's Policy: Any hints of a more aggressive or dovish stance on interest rates could dramatically shift market sentiment.
Global Economic Indicators: Further declines in industrial production, particularly in Europe, could worsen the outlook for global equities.
Domestic Market Trends: In India, Nifty’s movement around the 50-DEMA and broader market sentiment will be key in determining the near-term market direction.
In these uncertain times, investors are advised to remain cautious and stay abreast of the latest economic data and technical signals to navigate market volatility effectively.