When ADX Sleeps: Decoding Nifty’s Deep Compression Phase

When the Average Directional Index (ADX) on Nifty’s weekly chart falls below 10 — as it has now — the market is not just quiet; it is almost motionless. Such readings are rare and often misunderstood. Traders interpret them as lack of opportunity, but seasoned technicians see them as the coiling of a spring.

Let us explore what this means, why it matters, and how to read the signs that hint at which direction the eventual breakout may take.

ADX on weekly Charts in Nifty below 9. Also marked on the chart is the period of April 2023 when ADX reached levels of 12

The Silence Before the Storm

An ADX below 10 signals the absence of trend strength. Neither bulls nor bears currently have control. Price often oscillates narrowly around the mean — in this case, near the 20-week simple moving average (SMA).

This is the market’s digestion phase. After a long trending period, volatility contracts and ADX drifts downward. The lower it goes, the more energy the market stores.

Think of it as a period where the market breathes in — quietly, rhythmically — before exhaling in one decisive move.

What History Suggests

Whenever Nifty’s weekly ADX has dropped substantially in the past — notably in April 2023 — the pattern has been similar. Within four to eight weeks, a sharp directional move followed, often lasting several months.

These breakouts are not random. They tend to align with the first uptick in ADX after a prolonged lull. That moment marks the reawakening of momentum.

The challenge is not spotting the breakout itself — it is recognising which way the coil will release.

Signs That Hint at Direction

While one cannot predict direction with certainty, the chart and its components offer subtle clues — like ripples before a wave.

1. The DI Lean

Even when ADX is flat, the +DI and –DI lines remain active.If +DI begins to curl upward while –DI flattens, it implies quiet accumulation — buyers are slowly taking control.

If the reverse happens ie; –DI strengthening while +DI fades a distribution is underway.

In short, when +DI crosses above –DI before ADX turns up, that is often the whisper before the roar.

2. Candle Rhythm and Volume

The anatomy of candles reveals mood shifts long before trend strength returns.During compression, candles shrink, bodies get thinner, and wicks appear on both ends. When one side begins to dominate, this rhythm changes — wide-bodied candles closing near their highs or lows begin to appear.

At the same time, volume spikes without immediate follow-through often hint at silent accumulation or distribution zones — the invisible preparation for the next surge.

3. The Moving Average Curve

The 20-week SMA is not just a trend filter; it acts as the spine of price behaviour.Repeated higher lows hugging the SMA from above suggest a bullish coil; lower highs pressing it from below suggest bearish pressure.

The direction in which the SMA’s slope turns,  after a flattening period, often precedes the next major leg. In fact, the slope change of the 20-week SMA tends to occur a bar or two before ADX itself rises.

4. Intermarket Confirmation

Even when the index is dull, sector rotation continues beneath the surface.If cyclical sectors such as financials, autos, or industrials start outperforming, it hints at an underlying bullish turn. If defensive sectors like FMCG or pharma take leadership, the market may be bracing for a downside break. The ADX might be asleep, but leadership rotation whispers the market’s intent.

5. The Sentiment Layer

Options data provide a behavioural overlay to this structure.A rising Put-Call Ratio (PCR) with flat price action reflects quiet optimism; traders selling puts expect stability or upside. Conversely, a falling PCR alongside increasing call open interest shows growing caution. It implies participants are hedging for downside risk.

This sentiment layer adds texture to the otherwise silent chart.

6. The ADX U-Turn

Finally, the earliest tradeable signal appears when ADX begins to turn up from its extreme lows. If that rise coincides with a price rejection at a prior swing low or high , a false breakdown or false breakout — the direction becomes visible before the trend becomes official.

The key is not to jump early, but to wait for rejection first, then expansion.

The Synthesis

When compression reaches such rare depths, several small clues converge to reveal where energy is building. The table below summarizes these directional hints. 

Observation	Bullish Tilt	Bearish Tilt
+DI vs –DI	+DI curling up, –DI flat	–DI curling up, +DI flat
Candle Bias	Tight closes near highs	Tight closes near lows
20-Week SMA	Slope turning upward	Slope turning downward
Sector Rotation	Cyclicals leading	Defensives leading
Options Sentiment	Rising PCR, more puts	Falling PCR, more calls
Rejection Clue	False breakdown near support	False breakout near resistance

The Takeaway

When ADX slips into single digits, the chart is not dead — it is coiling. This phase tests patience more than skill. Most traders grow restless; the few who wait, observe, and align the subtle layers — DI lean, SMA curvature, volume tone, and intermarket cues — stand ready when the expansion begins.

Breakouts do not start with noise. They begin with silence aligning across timeframes.

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Gautam Mazumdar

Author Decoding Charts

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