Bull market oversold! 3 technical reasons why a recovery is around the corner

Purely on a technical basis, the odds of a market rally from the prevailing level is materially high. This is based on historical study of moving averages, the 14-week RSI, the market breadth and how the stock market fared in the past selloffs.  

Moving Average Envolope
Axis Securities in a note said in the last decade, the 2016 low was the start of a major bull run. The advance that began then and culminated at the record peak last year saw many corrections along the way.

"What’s notable is that except for the Covid-led crash, all other declines were contained by a Moving Average Envelope (100 weeks, +/- 3 per cent). Unless this decline is similar to an “unknown unknown” such as the pandemic, there is ample evidence to believe – now that we have entered the envelope – that we are closer to a medium-term bottom. All we need is a bullish trigger, price-wise. For now, that has proved elusive," Axis Securities said.

14-week RSI
Since the  global financial crisis of 2026, the 14-week Relative Strength Index (RSI) bottomed in the 33-40 area (green zone) on nearly every correction within the larger bull market, said Axis Securities. In the 14 instances it got “bull market oversold” a staggering 87 per cent of the time the market formed a trough and eventually rose to a new 52-week high. 

"As we speak, the current drop has dragged the oscillator down into the lower end of this area. Based on the past, we’d say the odds of a rally attempt from here are materially high," Axis Securities said.

Market breadth
Axis Securities said the percentage of stocks trading above their 50-, 100- and 200-day averages has been pretty low at 7.6 per cent, 6.2 per cent and 10.1 per cent. It noted that at the depths of the Covid crash. i.e. these readings stood at 1.2 per cent, 4 per cent and 10.3 per cent, respectively. 

"The lesson here is rather simple - breadth measures can drop even more due to vertical plunges triggered by unexpected events. Therefore, getting in early hardly pays off unless one is willing to sit through short-term pain and then hold out for at least a quarter. In March 2020, the 50- and the 100-day readings went into single digits on March 12, but the bottom didn’t occur until March 20, with the NSE500 down another 22 per cent," it said.

Two things to watch
Axis Securities said investors should wait for two things to happen. One, these extreme technical readings should appear in a cluster Second, certain hurdles should be crossed before one can be sure of getting in with risk that is manageable. It sees demand zone for Nifty lies between 21,800 and 22,000.

Market recovery in March?

"Starting from the 2009 GFC lows, which were a pivotal point in the global risk-assets cycle, the month of March has averaged a gain of 1.7 per cent. If one excludes the 2023 drop of 23.2 per cent as an outlier, the average return improves to 3.4 per cent, with only four down instances in 11. That makes March the best month of the year and a likely candidate for the first up month in six (note that the Nifty has never been down six straight months, while the Sensex saw the last such downdraft in April ’95)," the brokerage said.

The recent correction in broader markets factors in some of the potential disappointments in earnings ahead, the brokerage said even as it feels the valuations for midcaps and smallcaps are still expensive vis-à-vis their history as well as against Nifty. 

Ashika Stock Broking said the combination of tax cuts, lower interest rates and improve liquidity should provide some support to corporate earnings growth going ahead. 

"The global trade policy uncertainty could also subside in the next couple of months. Hence, it is expected that on low base of FY25, corporate India could deliver steady earnings growth in FY26 and that would provide another trending market going ahead," it said.