D-Street Week Recap: Nifty’s Wild 2,057-Point Swing Signals Volatile Market Movement and Possible Pullback; Says Milan Vaishnav

The stock market had a busy week reacting to exit polls and actual election results. Nifty hit a new high, dropped almost 8% from its peak, then bounced back to a new closing high. Nifty’s trading range was wide, fluctuating within 2,057.25 points, and volatility soared over 40% before settling down by 31.38% to 16.88 compared to the previous week.

In the end, Nifty gained 759.45 points (+3.37%) for the week.

Market Expectations for Next Week

As we enter the new week, further pullback in the markets is expected, but be cautious of potential profit-taking that could lead to declines. The broader market’s performance is weak, as Nifty 500 rises but not as strongly as it should. Despite the ups and downs, the market has stayed within its resistance and support levels. Currently, Nifty closed just below a resistance level, suggesting a quiet start next week. Probable resistance levels are at 23,400 and 23,550, while support is at 22,900 and 22,630.

Technical Indicators and Market Signals

The weekly RSI (Relative Strength Index) is at 66.87, showing a bearish divergence, meaning the price reached a new high, but RSI didn’t, indicating potential market weakness. The weekly MACD (Moving Average Convergence Divergence) remains bearish. A long-legged Doji on the candles suggests a potential disruption in any ongoing rally.

Pattern analysis shows that after the market’s negative spike, support was found at a rising trendline, and on the rebound, Nifty closed just below the upper trendline of a small channel. Indicators suggest continued market vulnerability to profit-taking at higher levels.

Sector Performance and Investment Advice

The Nifty has bounced back from its negative reaction to election results but faces imminent profit-taking from higher levels. Defensive sectors like FMCG and Pharma are performing well. It’s advisable to protect profits at higher levels, reduce leveraged positions, and focus on buying stocks in defensive sectors and those with improving strength.

Relative Rotation Graphs® (RRG) comparing sectors to the NIFTY 500 Index show Nifty Auto, Consumption, and Metal Indexes leading. Nifty Midcap 100 has also moved into the leading quadrant, indicating that broader market sectors may outperform the main indices. However, Nifty Energy, Commodities, PSE, PSU Banks, Pharma, and Infrastructure are weakening. The Nifty Realty Index is improving on its relative momentum but is still weak overall. The IT index is lagging but improving against the Nifty 500 index. Nifty Bank, Financial Services, FMCG, and Media indices are in the improving quadrant, though Financial Services and Nifty Bank are losing momentum relative to the broader market.