Nifty closed in the green on August 23, taking cues from the pullback in most of the Asian markets.

At present, there is a huge divergence in the performance of the benchmark index and the mid and smallcap indices.

On August 3, Nifty broke out from a strong congestion zone by surpassing the crucial resistance of 16,000.

Nifty smallcap index found major top on the same day when Nifty registered bullish breakout. From the high of August 3, Nifty is 2 percent higher while the smallcap index has nosedived 10 percent.

So, the breadth of the market has deteriorated in the last two weeks.

Many small and midcap stocks have witnessed a correction of more than 20 percent from the monthly high.

While the Nifty is just a couple of percentages away from its all-time high of 16,700, the small and midcap indices are failing to sustain at higher levels.

The Nifty Smallcap index has breached its 50-day exponential moving average (EMA) for the first time since April 2020.

Last week, the Nifty Midcap index gave a bearish breakout from the head and shoulder pattern on the daily line charts which indicates more downside in the index.

The reason behind Nifty's outperformance is support coming from select largecap IT, FMCG and telecom stocks.

These stocks and sectors can still outperform.

Therefore, it is advisable to stick to largecap stocks for short-term trading instead of anticipating bottoms in smaller stocks.

There could be pullbacks in small stocks due to oversold conditions on short-term charts, but it would be wise to use those opportunities to lighten the commitments.

Nifty has not even violated its 10 and 20-day EMA supports which indicates that the trend of the benchmark index is still bullish on all timeframes.

Immediate support zone for the index is at 16,300-16,350, followed by 15,900-16,000 zone.

The primary trend of the Nifty is bullish till it holds above the 15,900 mark. Any level above 16,700 would further negate the possibility of a bearish trend reversal in the Nifty.