Dalal Street Week Ahead: Nifty Tests Key Support Levels as Volatility Increases

The markets saw a decisive drop in trading margin of 500 points (26,200-25,700) after a period of consolidation, ending the week on a negative note. Throughout the week, Nifty was trading with a clear downtrend, fluctuating within a range of 750 points between 26,373 and 25,623. It was the only major global stock index to finish in the red, pressured by rising uncertainty surrounding US trade tariffs and a delayed Supreme Court ruling now expected on January 14. India’s VIX rose 16.51% to 10.93 this week, reflecting increased caution. As a result, Nifty ended the week with a loss of 645.25 points or -2.45%.

The current technical structure indicates a possible pause in the prevailing uptrend as the index has closed below the lower limit of the 500-point trading range. The close below the 20-week moving average (25.579) would end in some increasing weakness. Markets remain vulnerable to further pressure, especially in light of a combination of domestic consolidation and global risk events. A break below the current support area could deepen the corrective move, while a recovery above 25,850-25,900 would be essential to regain strength.

The coming week could start cautiously, probably influenced by further developments in the US. Initial resistance is expected at 25,900 and then 26,100, while immediate support is at 25,500, followed by a more crucial zone around 25,300. Failure to defend 25,300 could lead to increasing weakness.

The weekly RSI is at 53.16 and has hit a new 14-period low; it remains neutral without any difference to the price. However, the flattening near the centerline indicates decreasing momentum. The MACD has shown a bearish crossover, with the MACD line now below its signal line, accompanied by a widening negative histogram, reinforcing the signs of a developing downtrend. No strong candlestick reversal pattern was observed on the weekly time frame, but the long black candle indicates negative sentiment.

From a pattern analysis perspective, the Nifty is still above the descending trendline it has breached. The support on this trendline would translate into testing the Nifty zone in the 25,500-25,300 zone. The index has also failed to stay above the upper Bollinger Band in recent weeks and is now testing the median line, further indicating that upward momentum has dissipated. Although the broader trend is still intact, the index is now under short-term pressure if it falls below the 20-week average.

Given the current setup, traders would do well to take a measured and stock-specific approach. Aggressive index positioning should be avoided until clarity emerges, either through reclaiming resistance zones or external event resolution. For the time being, it is wise to protect profits, limit any losses and remain selective when making new purchases. The coming week should be approached with greater caution and with an adaptive, reactive strategy rather than a predictive strategy.

In our look at Relative Rotation Graphs®, we compared several sectors to the CNX500 (NIFTY 500 Index), which represents more than 95% of the free-float market capitalization of all listed stocks.

Relative Rotation Charts (RRG) show that the Nifty Services Sector and Pharma Indices have rolled within the leading quadrant. These groups, along with Infrastructure, Banknifty, PSU Bank, IT, Midcap 100 and Financial Services groups, which are also in the leading quadrant, will relatively outperform the broader Nifty 500 Index.

Relative Rotation Charts (RRG) show that the Nifty Services Sector and Pharma Indices have rolled within the leading quadrant. These groups, along with Infrastructure, Banknifty, PSU Bank, IT, Midcap 100 and Financial Services groups, which are also in the leading quadrant, will relatively outperform the broader Nifty 500 Index. The Nifty Metal and Auto indices are in the weakening quadrant. However, they are believed to be greatly improving their relative momentum against the broader markets.

Nifty FMCG, energy and real estate indices are in the lagging quadrant. These groups may perform relatively worse than the broader markets. The PSE and Media indices are also in the lagging quadrant. However, they are showing a strong improvement in their relative momentum.

There are currently no sectors in the improving quadrant.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)