Is a relief rally possible in Nifty as RSI nears oversold region?

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On the weekly expiry day, Nifty extended its decline for the second consecutive session, losing 144.05 points to close at 23,635.10. The index opened 36 points lower and remained under pressure throughout the trading session, eventually ending near the day’s low.
Tuesday’s trading session resulted in the formation of a bearish candle, keeping the index’s ongoing pattern of lower highs and lower lows intact. The continued selling pressure dragged Nifty below its important parallel support zone, indicating further deterioration in the near-term technical setup.
The weakness is also visible from the moving average structure, as the 20-DMA has crossed below the 50-DMA. The increasing gap between these two moving averages indicates that downside momentum is strengthening and the short-term trend remains under pressure.
The recent decline has almost completely retraced the previous rally from the July low to the August high. From the August 3 peak, Nifty has corrected 1,151 points and is now approaching its previous swing low of 23,606.
The ongoing decline has stretched to nearly 10 trading sessions. Historically, short-term corrections often tend to last between 8 and 15 trading sessions, suggesting that the index could witness some consolidation or a short-term recovery attempt near the current support zone.
The 23,606 level has emerged as a crucial support area for the index. A decisive breach below this zone could increase selling pressure and drag Nifty towards the next support level of 23,478.
On the upside, the first sign of improvement would come only if the index moves above Tuesday’s high of 23,759. A sustained breakout above this level could trigger a recovery towards the next resistance zone near 23,890.
The 14-period daily RSI has declined towards the 30 mark, reaching its lowest level in more than five months. The indicator is now nearing the oversold zone, which may provide some support for a technical bounce in the near term.
However, the MACD histogram continues to expand on the negative side, highlighting that bearish momentum remains intact. Therefore, while oversold conditions may lead to a short-term pullback, the broader trend continues to favour caution.
Nifty’s overall technical structure remains weak following the recent correction. However, the approach towards the 23,600 support zone, combined with the RSI nearing oversold territory, keeps the possibility of a relief rally open.
For bulls to regain control, the index must defend the 23,600 zone and sustain above 23,759. Until that happens, any recovery attempt could face selling pressure at higher levels, as the broader trend continues to remain negative.
TD Power Systems witnessed a strong rally of nearly 72% from its July low to the August high. Following this sharp upmove, the stock entered a counter-trend correction phase, during which the decline halted near the 23.6% Fibonacci retracement level of the July-August rally.
Interestingly, this corrective phase has taken the shape of a flag pattern, indicating a potential continuation setup. The stock is now approaching a breakout from this pattern. A sustained move above the ₹779-780 zone could confirm the breakout and signal the resumption of the previous uptrend.
The stock is trading above its key short-, medium- and long-term moving averages, reflecting a positive underlying trend. Additionally, the 14-period RSI has entered the bullish territory, supporting the possibility of further upside.
Considering the above factors, a sustained move above the ₹779-780 level would be positive for the stock. On the upside, the breakout could open the door towards ₹840-865 levels. Traders can maintain a stop loss at ₹732.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
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