Handy ends flat if resistance persists; cautious optimism probably for next week

The markets have largely traded within a range over the past week, with the Nifty ending the week on a flat to slightly negative note. Despite a 25 basis point rate cut by the RBI in its monetary policy, the index remained subdued on a weekly basis and did not show any major directional distortions.The Nifty fluctuated within a narrow intraweek range of 434.8 points, moving between 25,891 and 26,325.80. Meanwhile, India’s VIX fell sharply by 11.21% on the week to close at 10.31, reflecting a continued phase of low volatility. The Nifty ended this week with a negligible loss of 16.50 points or 0.06%.

The current structure of the Nifty suggests that while the overall index remains in a primary uptrend, it faces stiff resistance at higher levels.

The price action continues to hover just above the breakout zone of a descending trendline that was broken a few weeks ago. This zone, which now acts as support, is between 25,900 and 26,000. Despite the bullish structure, lack of participation from broader markets (Nifty 500 is yet to regain previous highs) and weakening market breadth indicate underlying caution. A sustained move above 26,325 with an improvement in breadth could restore momentum, while the inability to hold above 25,900 could lead to increasing weakness or consolidation.

Given the flat close this week, markets could have a quiet to modestly positive start to the week ahead. Resistance is likely at 26,300 and 26,450 levels, while support levels are at 25,900 and 25,750. The global overhang of the Putin-India meeting and the delayed US-India trade deal may keep sentiment sensitive to the headlines.

The weekly RSI stands at 63.78 and remains neutral; it shows no deviation from the price. The MACD remains in a buy mode as it trades above its signal line. On the front of the candle, the index has formed a small candle with a long lower shadow, resembling a hammer-like formation; this reflects purchases at lower levels, but indecision at the top.

From a pattern perspective, the Nifty continues to trade above the breakout zone of the descending trendline drawn from the September 2024 highs. This breakout is structurally bullish, but the index is yet to show a decisive breakout from the symmetrical triangle that has limited gains since September 2024. The price is also well above the major moving averages, including the 50-, 100-, and 200-week SMA, reaffirming the bullish undertone. The Bollinger Bands are expanding, but as prices follow the upper band, caution is also needed for possible mean reversion if the upward momentum does not continue.

In the coming week, market participants should adopt a selectively bullish but cautious stance. While the overall trend remains upward, it would be wise to protect profits at higher levels. Fresh purchases may only be made in high-quality and technically resilient shares. A stock-specific approach with a focus on sectors showing relative strength is advisable. The method of approaching the week should be one of cautious optimism – respecting the trend, but with disciplined stop-losses and keeping a close eye on any breakout or breakdown from the prevailing range.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 Graphs (RRG) show the Nifty PSU Bank, Metal, Bank Nifty and Infrastructure indices in the leading quadrant, with the Metal Index sharply losing relative momentum. However, it is likely that these groups will continue to outperform the broader Nifty 500 Index.

The Nifty Midcap 100 is the only index that is in the weakening quadrant; that, too, is deteriorating its relative momentum versus the broader markets. This can have a negative impact on the overall market breadth.

The Nifty Pharma, Media, FMCG, Consumption and Commodities indices are also languishing in the lagging quadrant and are likely to underperform the broader markets relatively.

As the Financial Services and Services Sector Index rotate within the Improving quadrant, we see the IT, Energy, PSE and Realty indices comparing their relative momentum when compared to the broader markets, while remaining in the same quadrant.

Important Note: RRG™ 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.

(Milaan Vaishnav is CMT, MSTA Consulting technical analyst. Opinions are his own)

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