DeepDive Week 7, 2025: Midcaps and Smallcaps plummet to new lows. FIIs on selling spree as Trump’s tariff shockwaves hit Dalal Street. Hang Seng defies.
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As the Q3FY25 result season comes to a conclusion, the market has discounted it all. Companies posting poor results were punished with steep fall in price, in some cases losing over 40% during the week. Whereas, good and outstanding quarterly results could not sustain the rewarded intra-day price rallies. Why? Dalal Street is witnessing panic selling. Any rise is seen as an opportunity to sell.
Trump’s tariff threats send global shockwaves. United States has proposed to impose 25% additional tariff on goods imported from Mexico and Canada, and an additional tariff of 10% on goods imported from China. Nearly 40% of goods imported by USA, come from these 3 countries. Trump wants US manufactured goods to be price competitive, as imported goods from these countries become more expensive after the imposition of tariffs.
Why is the Indian Stock Market taking the brunt of tariff threats?
As the world fear tariff war, the US Bond yields have witnessed a substantial jump. USD strengthens vis-a-vis global currencies. In the previous DeepDive post, we’d discussed about Indian Rupee (INR) depreciating to historical lows, when USD/INR reached 87 mark. During this week, FIIs continue to sell in anticipation of further INR depreciation. As a result of the shockwaves after tariff threat, panic selling continues all across, with the Midcaps and Smallcaps taking the maximum hit, whereas some bluechip/largecaps saw resilient price action. This global institutional money exiting from Indian stock market, is chasing safer options like US Debt instruments, USD (currency) and Gold/Silver (precious metals).
Now, the question on everyone’s mind is - ‘when will the selling stop?’.
As long as INR is depreciating, Indian Stock markets will continue to bleed. Logically, a foreign institution has better and safer options to park their money.
Market Breadth
Let’s now dive into the data, and analyze the market breadth of the stock market.
Stocks trading above 200DMA: saw a steep fall from 33% (previous week) to now 17%. This means, only 17% stocks are trading above its long term average (200DMA).
Stocks trading above 21DMA: this number also witnessed a drastic fall from 35% (previous week) to now a mere 8%. This single digit number shows that 92% stocks trade below their short term moving average line i.e. there is no momentum and liquidity.
The overall market breadth has deteriorated, primarily due to panic selling, all across. During such basket selling, stocks can witness steep fall as there is no liquidity to sell (absence of buyers). Even great stocks can fall drastically. That is why, we continue to remind - ‘nothing great happens when indices/stocks trade below 200DMA’. It better to stay away!
“It is generally agreed that Bear Market start when the Index falls more than 20%. As per this understanding, Nifty MidCap and SmallCap Indices have entered the Bear Market phase. However, silver lining is that Nifty50 is still not there. ”
As per our Trading Rules, that are based on the experience of world’s legendary traders, when the major indices are trading below 200DMA, it is a No Trade Zone for swing/positional traders. We had discussed about this ‘Rule’ more at length in our earlier Week-4 DeepDive post (click here to read).
Analyzing Major Indices
Charts never lie. All you need is right skill. Ready to DeepDive into the major Indices?
In this section we’ll be looking more closely at the following major Indices:
NIFTY50
NIFTY500
NIFTY MIDCAP
NIFTY SMALLCAP
Nifty50 Index: Price Chart on daily timeframe. (Source: TradingView).
Nifty is currently trading below 200DMA. Do you notice the price trading in ‘Down-Trending Channel’? Closely look at the pattern forming lower-highs, recent one being 3rd Lower High (when it faced rejection and couldn’t hold above its 200DMA). However, it didn’t breach the 2nd Lower Low, and closed just above that. This shows buyers are supporting Nifty. A positive sign! Keep a very close eye at this support near 22800-22900 range. See if next week bulls take the index higher from this support area.
Has Nifty50 Index hit the bottom?
At the outset, Nifty50 must breakout of this down-trending channel to confirm Trend-Reversal, i.e. from downtrend to uptrend. The final confirmation of ‘bottom’ will come when we see higher-highs (HH) and higher-lows (HL) forming on the technical chart. Until that happens, there’s no confirmation of bottom for Nifty50.
Nifty500 Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading below 200DMA. Unlike Nifty50, this Index could hold above the previous low. Clear downtrend with Lower-Lows (LLs) and Lower-Highs (LHs).
Nifty MidCap Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading below 200DMA. It has re-tested its 200DMA twice, but faced rejection. Can you observe the clear downtrend with LLs and LHs?
Nifty SmallCap Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading below all MAs - 200DMA, 50DMA and 21DMA. Chart action is quite bearish, similar to Midcap Index, with LLs and LHs.
As the overall Market Breadth approaches oversold territory during this week, only two Sectoral Indices have managed to close ‘above’ 200DMA:
NIFTY FINANCIAL SERVICES
NIFTY IT
Nifty Financial Services Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading above 200DMA (yellow line). Previous week also, this Index was the outperformer. The leading stocks from this sector should already be in your Watchlist!
Nifty IT Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading above 200DMA, however it is creating LHs and LLs on the charts. It eroded all gains of previous week. Will it bounce back from it’s 200DMA?
Where’s the Action this week?
HANG SENG !
It is the heavyweight index of Hong Kong, just how Nifty50 is in Indian Stock Market. Remember the time in September’24 when Hang Seng caught everyone’s eye? The Index rallied 35% in about three-weeks, in response to the optimism infused by the Chinese leadership. However, it couldn’t sustain the rally and gave back most of it’s gains.
Interestingly, the index is sitting at the same level after consolidation of about 18 weeks. The Hang Seng Index has gained 7% during this week, and cumulatively gained around 20% in last five-weeks. What’s different this time? Hang Seng did this discreetly. The consolidation phase took the media attention away, while the price kept inching higher and higher, without gaining too much attention. This makes this price action more meaningful.
Look at the chart below.
Hang Seng Index: Price Chart on weekly timeframe. (Source: TradingView).
Can you spot the ‘cup and handle’ pattern on the weekly charts? This is a continuation pattern, that becomes more meaningful when the price has rallied from the bottom. To continue an upside rally, the Index should breakout above the Resistance Zone (highlighted in the chart). The more the resistance is re-tested, the lesser it acts like a resistance next time. Will Hang Seng breakout above this in the coming weeks? Keep an eye!
Let’s compare returns given by Hang Sen and NIFTY50, since starting of 2024, till this week:
since 1st Jan24, NIFTY50 has given return of : 5.5%
since 1st Jan’24, HANG SENG has given return of : 35%
HANG SENG has outperformed NIFTY50 by almost 6 times, during this period. That’s simply mind-blowing outperformance for an Index vis-a-vis Index! Isn’t it?
As a Trader, you should look for such opportunities BEFORE they become too evident for the masses. You should AVOID buying the news and media hype, as they are more likely to be TRAPS!
HOMEWORK EXERCISE: Compare the returns of Nifty50, Hang Seng, S&P500, Gold, Silver and Bitcoin since Covid crash. Bookmark this exercise as priority!
WHERE SHOULD YOU FOCUS AS A TRADER, IN THE COMING WEEKS?
As per Trader Hikes’ Rule (THR), no fresh trading position is to be initiated as long as major indices are trading below 200DMA. No sustained move is expected till then, rather it can do more damage by multiple chops. Risk Management is our priority!
Build your Watchlist of Stocks: Stay on the sidelines, and focus on building a watchlist of stocks. How can you find that?
Stock which are trading above 200DMA, preferably above 50DMA, are the ones where you should focus. When the Indices improve and resume the uptrend, these are the stocks that can likely give a solid runup.
Find leading stocks from leading sectors/themes. For clue, look for sectors trading above 200DMA, and find the top stocks from these sectors. Build a Watchlist.
If the major indices improve in coming week(s), you can likely find low risk-reward entries in these names from your watchlist. Always stay where strength is! Just wait for the overall environment to turn favorable, before you hike!
That’s a wrap! See you in the next week’s Deep Dive hike.
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