Dalal Street Week Ahead: Volatility Remains High, Traders Urged to Stay Alert

The markets witnessed a corrective move in a volatile week as they ended lower. Nifty fell all week and ended negative. The index fluctuated within a wide intraweek range of 733 points, moving between 25,653 and 24,919. India’s VIX rose sharply by 24.80% to 14.19, indicating a sudden spike in risk perception and uncertainty. Nifty ended the week with a net loss of 645.70 points or -2.51%.The current technical structure of Nifty reflects a significant breakdown. After failing to confirm a breakout, the index has fallen below the trendline drawn from the September 2024 high. It has also fallen below the short-term 20-week moving average and is now hovering near the lower Bollinger Band. The lower Bollinger band also corresponds to the 50-week MA, placed at 24758.

The region of 25,000–25,150, which includes the 200-DMA on the daily chart and a key support, is being tested. If this zone is convincingly violated, it can lead to a deeper corrective action. Conversely, any rebound would remain vulnerable unless the index recovers the 25,650 level.
Given the steep correction and a slightly oversold setup on the daily chart, the coming week, shortened by the Republic Day holiday on Monday, could see a cautious start with a possible technical recovery. However, volatility is expected to remain high as Tuesday also marks the monthly F&O expiration date. Overall, as markets opened after a one-day break, they would also adjust to the prevailing global trading environment.

The immediate resistance levels are placed at 25,320 and 25,650, while supports exist at 25,000 and 24,800. The weekly RSI is at 44.47 and remains in a neutral zone; however, it has reached a new 14-period low along with the price, indicating no divergence. The weekly MACD is bearish and is below its signal line, reinforcing bearish momentum. A long black candle has appeared on the weekly chart, indicating strong selling pressure and a break from the previous consolidation.

Pattern-wise, Nifty has broken below the descending trendline, which generally has bearish implications. This breakdown is significant because it was accompanied by a wide range candle and a close below the 20 week MA. The next visible support is around the 50-week MA, near 24,758.

A cautious and stock-specific approach is advised for the coming week. While oversold conditions may trigger a rebound in the short term, the broader structure has been weakened. Traders should avoid aggressive long positions and focus on protecting profits. Any upside potential should be used to lighten positions or initiate low-risk short opportunities if resistance levels persist.

The method to approach the week ahead would be to remain highly selective, manage risk tightly and keep exposure light ahead of expiry volatility.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 IT Index continues to rotate strongly within the leading quadrant. Besides, Financial Services Index, Midcap 100, PSU Bank Index, Banknifty, Metal and Services Sector Indices are also in the leading quadrant.

Metals and IT look strong relatively speaking, but overall this group could relatively outperform the broader markets. The Infrastructure Index has entered the weakening quadrant. The Nifty Auto Index is also in the weakening quadrant.

The Nifty Energy, Realty and FMCG indices are languishing in the lagging quadrant. These groups may perform relatively worse than the broader markets.
The Pharma Index has turned a corner and returned from the leading quadrant to the improving quadrant after losing relative momentum.

Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 Index (broader markets) and should not be used directly as buy or sell signals.