DeepDive Week 9, 2025: IT Index drags Nifty. Small/MidCap investors find no solace. Bitcoin’s volatility busts stability myth as tariff war escalates.
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Week 9: 24th-28th February, 2025
IMPORTANT EVENTS OF THE WEEK
The week was no less than an ambush for the global stock markets. The events that transpired during the week had a profound impact on the Indian stocks as well. Our Weekly Newsletter covers all such important events, and their impact on stocks, indices, commodities and crypto currencies. Ready to DeepDive into the weekly action?
First, let’s see what actually happened during the week:
A). Trump escalates Tariff-War:
Donald Trump has gone one step ahead than mere planning to impose tariffs. He has announced that Tariffs will be implemented from 4th March’25:
Mexico & Canada: Trump earlier indicated 25% tariffs will be imposed.
EU: also likely to face 25% tariffs
China: additional 10% tariff is imposed on Chinese imports (apart from the 10% tariff imposed earlier in Feb’25)
Resultant, the investor confidence got shaken-up, as analysts now predict such Trade Wars are likely to increase inflationary pressure thereby delaying the Fed’s rate cuts plans. The predictions show consumer inflation in US climb to 4% in 2025. This led to strong selling pressure in the US equities. Volatility was extremely high!
B). NVIDIA’s Stock Price Volatility: the negative price reaction of -8% on strong Q4 result by NVIDIA but muted guidance spoiled the mood of NASDAQ and S&P500. However, on Friday (28th Feb’25), US stocks showed mix reactions, as the S&P Index traded in negative territory while many stocks where ended the day on positive note. To understand better, look at the heat map below:
Heatmap of US Stock market on 28th February, 2025.
C). Non-Friendly Conversation between Trump & Zelensky: the social media was flooded with videos of conversation at the US Oval Office between Donald Trump and Zelenskyy, President of Ukraine. The whole dialogue was cut short by Trump, as the arguments between them didn’t reach any fruitful negotiation, and Trump later decided to withdrawn from giving help to his counterpart. This meeting has deteriorated the US-Ukraine relationship. More trouble lies ahead for Ukraine, which will only lead to more volatility in the global markets.
D). Trump acts on making USA - ‘Crypto Capital of the World’: On the weekend, came another big positive news for the crypto market. President Trump has announced the creation of ‘US Crypto Strategic Reserve’ inline with his ambitious plan to make US the ‘Crypto Capital of the World’. The reaction was lightning fast!
The volatility in crypto market is in contradiction to widely accepted belief that this decentralized system acts a ‘hedge’ when equity markets become volatile. In the later part of this Newsletter, we’ve analyzed - how Bitcoin bust the stability myth. So, sit tight till you’re through!
IMPACTS ON INDIAN STOCK MARKET
A). Nifty50 makes a new Lower-Low: In just 22 weeks from sentiment when the talk of the town was about Nifty hitting 26k, the index is now trading close to the low of 4th June (LS Election Result day), it’s major support zone at 21500-22000 level. In the chart below, you can observe that in about 5 months, Nifty has corrected by around 15% making lower-highs (LHs) and lower-lows(LLs). This technical structure is a confirmation of clear downtrend!
Nifty50 Index: Price Chart on daily timeframe. (Source: TradingView).
See the same chart on ‘weekly’ timeframe (below). This shift from ‘daily’ to ‘weekly’ timeframe helps to better analyze the long-term trends (Stage 1,2, 3 and 4), without any distortions due to daily price fluctuations. As a Trader, you should closely track the charts of major indices and your stocks on ‘daily’ as well as ‘weekly’ timeframes.
In our previous DeepDive Newsletter (click to read), we rightly warned about this week’s fall in Nifty. How did we rightly predict the fall? We DeepDive in the real sense!
Nifty50 Index: Price Chart on ‘weekly’ timeframe. (Source: TradingView).
B). Steep fall in the Nifty IT Index
The Indian IT heavyweights like TCS, Infosys, Wipro etc. succumbed amidst the reactionary selling pressure due to weakening in US . NiftyIT Index ended the week - down by around 8%. That’s the biggest fall in a week, since June’22 when the Index fell by 8.2% (during 2021-22 correction).
Nifty IT Index: Price Chart on daily timeframe. (Source: TradingView). Currently trading below 200DMA (yellow line). Observe the blue-dotted line, showing formation of Lower Lows & Lower Highs.
C). Market Breadth has become ‘extremely oversold’
Stocks trading above 200DMA: has fallen from 18% (previous week) to now 11% i.e. close to hitting a single digit mark.
Stocks trading above 21DMA: only 5% stocks close the week above their 21DMA
The extremely oversold market breadth suggest that in the coming week, we can see a technical upside rally in the overall market. However, since the SmallCaps and MidCaps have witnessed deeper corrections vis-a-vis LargeCaps, there’s a high likelihood of a strong technical upside rally in the small & mid cap stocks.
Market Breadth at the end of Week 9, 2025 (Source: ChartInk)
CRYPTO MARKET
PRICE ACTION OF BITCOIN BUSTS MYTH ABOUT IT’S STABILITY
Bitcoin is often misunderstood as a hedge against volatility due to its decentralized nature, yet recent price declines challenge this perception. This analysis will explore Bitcoin's volatility, compare it to the S&P 500 Index, and examine any correlation between the two, particularly in the context of the rally following Donald Trump’s election in 2024. That’s our period for comparison.
Let’s now DeepDive into the technical charts of Bitcoin and S&P500.
Bitcoin (USD): Price Chart on ‘daily’ timeframe. (Source: TradingView).
S&P500 Index: Price Chart on ‘daily’ timeframe. (Source: TradingView).
The S&P 500 Index tracks the performance of 500 large-cap U.S. companies and serves as a benchmark for the broader stock market. Bitcoin, a decentralized cryptocurrency, operates in a fundamentally different ecosystem. Let’s see how they compare on following parameters:
Volatility: Bitcoin’s annualized volatility often exceeds 50-70%, while the S&P 500’s is typically 15-20%. This makes Bitcoin a far riskier asset as the price swings can have wide spreads.
During the above period of comparison, Bitcoin’s outsized reaction highlighted its higher volatility.
Upside Rally: post Trump’s win, the Bitcoin rallied more than 50%, whereas the price rally in S&P500 index was limited to around 5-6%. This was fueled by speculation around Trump’s pro-crypto stance, amplifying its speculative volatility
Correction: While Bitcoin corrected by 28% from ATH level till this week’s low, the S&P500 has corrected by only 4.6%. That’s shows sheer outsized volatility associated with Bitcoin, in contrast to the common belief among traders and investors!
Market Maturity: The S&P 500 reflects established firms with predictable revenue streams, whereas Bitcoin, as a relatively new asset class, remains subject to rapid shifts in adoption, regulation, and perception. Bitcoin can often overreact to sentiment driven news.
Economic Ties: The S&P 500 is closely linked to macroeconomic indicators like GDP growth and interest rates. Bitcoin, while increasingly influenced by such factors, is also driven by crypto-specific events, such as regulatory developments or technological upgrades.
For instance, in the technical chart of Bitcoin (above), Bitcoin falls around 28% in 5 weeks, and sharply recovery 20% from week’s low after Trump’s announcement on ‘Crypto Strategic Reserve’ in just 3 days. Do you see a big shakeout candle formed just at a point where maximum people would place their SLs i.e. at 200DMA? This underscores Bitcoin’s high-risk profile, challenging the notion that its decentralized system inherently shields it from market turbulence.
Correlation between Bitcoin and S&P500: Previously, what were considered to be un-correlated, the price movement of Bitcoin and S&P500 during Covid-crash and now Post-Trump election win, shows positive correlation. Moreover, the increased volatility in Bitcoin during phases of over fear in US stock market indicates that Bitcoin fails to act as a stable ‘hedge’ in periods of market volatiltiy. Recent data published by Arcane Research showed the 90-day correlation between Bitcoin and the S&P to be as high as 0.49.
“Never blindly trust any notion in stock market. Trust your own process and research. That’s the least you must do when you are putting your hard earned money at risk. ”
HOMEWORK EXERCISE: Compare the price movement of S&P500 and Bitcoin since 2020 Covid crash. See if you find a correlation between them!
WHERE SHOULD YOU FOCUS?
Here’s a reminder - ‘nothing great happens when indices/stocks trade below 200DMA’.
As per our Trading Rules, that are based on the experience of legendary traders, when the major indices are trading below it’s 200DMA (long terms average), it is a ‘No Trade Zone’ for traders. No sustained move is expected till then, rather it can do more damage by multiple chops. Risk Management is our priority! We had discussed about this ‘Rule’ more at length in our earlier Week-4 DeepDive post (click here to read).
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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