Nifty nears breakout zone as bulls eye confirmation above 25,900 next week

In the shortened three-day trading week, markets showed a slight uptrend and managed to end with marginal gains. The Nifty remained within a narrow range and fluctuated between 26,104.20 at the higher end and 25,718.20 at the lower end, marking a tight range of 386 points on the week. Despite limited activity, India’s VIX fell slightly by 0.30% to close at 11.59, continuing to reflect complacency and low volatility expectations. The Nifty ended the week with a modest gain of 85.30 points or 0.33%.

The major development during the week was an attempt to extend Nifty’s breakout attempt above a multi-month consolidation zone. The Index rose above the falling trendline resistance that emerged from the 2024 high, and this move is technically important.

Although the close came just below the upper Bollinger Band (25,855), the structure is showing improving momentum. Nifty is now challenging the upper end of a wide symmetrical triangle, and a confirmed close above this zone has opened room for a sustained directional move. The market is trying to transition from a consolidation to a trend phase, and confirmation of this breakout next week will be crucial for a follow-up. Given the outbreak attempt, the coming week can start with cautious optimism. If the Index remains above the 25,850–25,900 zone, the breakout could attract further momentum-driven buying. In such a case, the immediate resistance is at 26,100 and further at 26,220. On the other side, support comes in at 25,600, followed by 25,470.

The weekly RSI stands at 61.60 and is neutral; it shows no bearish or bullish divergence against the price and maintains its bullish range. The weekly MACD remains in a buy mode as it remains above the signal line, and the histogram continues to rise, supporting the bullish momentum. The weekly candle is a small bullish body placed at the edge of a breakout at the bottom of the range; While not a classic Shooting Star candle, its position is strategically important given its proximity to resistance.

From a pattern perspective, Nifty has been moving within a broad symmetrical triangle formation for several months now. The Index has now attempted to break out of this consolidation, with the current candle showing an early sign of this breakout. The Index is trading comfortably above all major moving averages, including the 20-, 50- and 100-week MAs, all of which are rising – indicative of a structurally strong setup. If the breakout continues, the pattern implications suggest a potential upward trend move.

In the coming week, the participants would do well to remain tactically optimistic but cautious. Although the technical structure is improving, the breakout will not be fully confirmed until there is a strong follow-up week above 25,900. Traders should avoid overly aggressive positions until there is clear confirmation. A prudent approach would be to monitor existing positions, protect profits and pursue a selective, stock-specific strategy, while keeping a close eye on broader index behavior around breakout levels.

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 Metal, PSU Banks and the Auto Index are in the leading quadrant. While retaining their leadership, these sectors are likely to perform relatively better than the broader Nifty 500 Index.

The Nifty Midcap 100 Index is the only group that is in the weakening quadrant. This means that while individual stock-specific performance is visible, overall relative performance may still remain subdued.

The Nifty Pharma has entered the lagging quadrant. We also see the media, raw materials and the consumption index languishing in this quadrant. The financial services, energy, real estate, bank nifty, services sector, PSE and infrastructure indices are also in the lagging quadrant; however, they significantly improve their relative momentum.

The IT index remains well positioned in the improving quadrant. Relative performance against the broader markets is expected to improve. The FMCG index is also in this quadrant, but is seen to be giving up relative momentum against the broader markets.

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.

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