Nifty maintains uptrend after volatile week but faces consolidation near highs

In a six-day trading week, the Nifty traded with increased volatility throughout the week and ended with gains. The week was marked by sharp swings with markets first reacting nervously to the Union Budget announced on Sunday, followed by a strong positive reaction to the India-US deal leading to a move higher. As a result, the index fluctuated within a wide range intraweek of 1661.80 points before moving higher. The Indian VIX cooled significantly over the week, falling around 12%, reflecting declining volatility following the event-heavy phase.

On a weekly basis, the Nifty posted a gain of 373 points. Structurally, the broader market trend remains positive, although the index is currently going through a consolidation phase after a strong upward move.

On the weekly chart, Nifty remains above its key medium-term moving averages, but recent price action is showing hesitation at the top of the ascending channel. The index faces a supply zone around recent highs, which has seen repeated selling pressure.

While the primary trend is still bullish, a sustained move above the recent swing high would be needed to reaffirm positive momentum, while a decisive break below the bottom of the recent consolidation band could trigger a deeper corrective move. The coming week could see a positive start to the markets after the volatile but event-driven week that has passed.

The immediate resistance for the Nifty is around 26,000, followed by a stronger hurdle around 26,300. On the downside, supports are seen at 25,400, while the next major support is around 24,850, which also coincides with the main moving average support.

Momentum indicators show a neutral to slightly positive picture. The weekly RSI is around 53, remains in the neutral zone and does not indicate any bullish or bearish divergence against the price.

The weekly MACD remains below its signal line, but the histogram begins to narrow, indicating a loss of downward momentum. On the candlestick front, the week has resulted in a relatively long range candle, highlighting volatility and indecision at higher levels rather than absolute strength. From a pattern perspective, the weekly chart shows a Nifty close above the falling trendline support. The recent pullback from the highs does not detract from the broader trend, as the index continues to trade comfortably above its 50-week and 100-week moving averages. This setup suggests that the long-term trend is intact, but short-term consolidation cannot be ruled out.

Given the current situation, traders and investors should take a balanced and selective approach in the coming week. Aggressive long positions can be avoided until the index clearly rises above resistance, while existing positions should be managed with disciplined trailing stops to protect profits. New opportunities are likely to remain stock-specific rather than index-driven.

Overall, the focus for the week ahead should be on sensible risk management, selective participation and closely monitoring how the index behaves around the identified support and resistance zones.

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 Financial Services, IT, Banknifty, Services Sector, Metal and the PSU Bank Indices are in the leading quadrant of the RRG. While there will be some loss of relative momentum among PSU banks, these groups will continue to outperform the broader markets relatively.

The Nifty Midcap 100 Index has entered the weakening quadrant. This may lead to a slowdown in the relative performance of the Midcap Index. Besides, the Nifty Auto and Infrastructure indices are also in the weakening quadrant.

The Nifty Realty and the FMCG Indices are languishing in the lagging quadrant, while the Realty Index has shown a slight improvement in its relative momentum. The Energy Index has moved into the improving quadrant. In addition, the Media Index is also in the improving 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.

(The author Milan Vaishnav is CMT, MSTA Consulting technical analyst)

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