Fresh bear hug could drag the market down to 22,500

The strong support of 22,800, which was tested six times through Friday, could give way and trap the bulls initially this week, according to derivatives analysts. Market veterans said that global tariff tensions and slowing earnings growth back home have dented sentiment to the extent that potential rallies could be used by investors to trim recent losses.

On Friday, the Dow Jones marked its worst trading session of the year, dropping almost 750 points or 1.7% as US consumer sentiment fell to a 15-month low of 64.7 in February. American households fear President Trump’s fresh tariffs could increase inflation and reduce their purchasing power.

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Ahead of the Dow’s closing on Friday, Indian retail investors slashed their bullish bets, causing the Nifty to close below the 22,800 support for the first time since 27 January.

“Bears could trap bulls initially with Friday’s closing being below the swing low of 22,800 for the first time on six occasions that the support has been tested intraday,” said Rajesh Palviya, derivatives and technical research head at Axis Securities.

Market range

Options data for the monthly expiry week indicates a market range between 22,500 and 23,100, with high chances of the market testing the lower end of the range on Monday before a temporary recovery sets in. Nifty derivatives expire on the last Thursday of every month. These derivative contracts provide clues to market sentiment.

The Nifty has tested 22,800 six times since 27 January through last Friday with one crucial difference—on the previous five occasions whenever Nifty tested the support, it closed above 22,800. However, on Friday, it closed at 22,795.9, down half a per cent.

While analysts like Palviya expect the selling to reverse after the Nifty tests 22,500-22,600, market veteran Ramesh Damani believes the tariff tensions being whipped up daily to “queer the pitch” for equities.

“I think we should brace for a longer spell of volatility with President Trump stirring up the cocktail, as it were, daily. There is some news flow about tariff threats almost daily, which is raising uncertainty. Even the Dow cracked on Friday, and that’s bad news,” Damani said.

Down but not out

Shankar Sharma, another storied investor and founder of GQuant Investech, believes that investors could use potential rallies to book profits or trim their losses.

“The Bull Market is an ageing one and, hence, has suffered a few big blows and is down for the count. It could be a while before the Bull gets back on its feet. Easy money is over. Now, for the next few years, investors will need high skills to make money,” Sharma said.

He added that bounces could be “interspersed ” within the downturn.

On Friday, retail and high networth investors trimmed their long positions on Nifty futures contracts while options traders sold more Nifty calls at the 22,800 level—a sign they expect the markets to fall from there.

Nifty futures contract expiring this Thursday saw its open positions fall by 8% as the markets fell, which indicates that bulls squared off some of their long bets ahead of Monday, expecting turbulence.

Read more: BSE: From bear market bait to global investment darling. Will it hold?

Options traders added 45,506 contracts to the 22,800 call on Friday, taking cumulative open positions to 61,797 contracts with a view that a correction in markets this week would enable them to pocket the premiums paid by call buyers.

Apart from net selling over ₹1 trillion worth of shares so far this calendar year, per NSDL, foreign portfolio investors held near-record high net shorts on index futures—Nifty and Bank Nifty—of 192,891 contracts on Friday.

Thanks to a depreciating rupee, the dollar returns of FPIs have turned negative on a one-year basis. The BSE Dollex 30, which measures the Sensex in dollars, closed at 7,126.9 on Friday, down almost a per cent from a year ago.