Trade Setup for January 21 | Nifty at a crossroads: Will the 200-DMA hold?

Equity benchmark Nifty 50 took a sharp knock in Tuesday's session, breaking below key support levels and sliding towards its 200-day moving average, placed around the 25,100 mark.

The index fell for the second straight session, shedding 353 points or 1.41% to close at 25,232. This marked its lowest closing level since October 14, 2025, and the steepest single-day decline since May 13, 2025.

The sell-off triggered a sharp erosion of investor wealth, with the market capitalisation of BSE-listed companies shrinking by over ₹20 lakh crore so far in 2026.

Gains were scarce across the Nifty pack, with only Dr Reddy's, Tata Consumer and HDFC Bank managing to end in the green. Adani Enterprises, Bajaj Finance and Jio Financial Services led the losses and finished as the top laggards.

The pain was widespread across the broader market, with all sectoral indices ending lower.

Realty, consumer durables and auto stocks bore the brunt of the selling and emerged as the worst-performing sectors of the day.

The broader indices also saw heavy pressure, with the Nifty Midcap 100 tumbling 2.62% and the Nifty Smallcap 100 plunging 2.85%.

The Indian rupee extended its losing streak, depreciating 6 paise to close at 90.97 against the dollar. Despite the Reserve Bank of India's efforts to stabilise the currency, the rupee came under pressure due to weak dollar inflows, stalled trade negotiations and persistent dollar demand from corporates and importers.

Market sentiment remains fragile amid ongoing geopolitical tensions and a quarterly earnings season that has largely failed to meet Street expectations.

From a technical perspective, the Nifty decisively breached the crucial swing low of 25,473 during the session and is now hovering near its final major supports at the 200-day EMA of 25,160 and the 200-day SMA of 25,113.

Nandish Shah of HDFC Securities said bearish trends have been confirmed across timeframes, and a sustained break below the 200-day averages could open the door for further downside towards the 24,800 to 24,900 zone.

He added that the earlier support band of 25,470 to 25,500 is now likely to act as resistance on any pullback.

Rupak De of LKP Securities said bears have firmly regained control as strong institutional selling continued amid ongoing transatlantic trade tensions.

He mentioned that supports look fragile, with indicators remaining in a bearish crossover and approaching oversold territory. According to him, immediate support is placed around 25,100 to 25,150, and a pullback could be possible if this zone holds.

Nilesh Jain of Centrum Broking said that while a short-term rebound cannot be ruled out, the overall bearish setup will remain intact unless the Nifty decisively moves back above 25,580.

He added that a break below 25,100 could accelerate the fall towards the 24,800 level.