Dalal Street Strategy: Secure Gains and Rotate Investments in a Quiet, Volatile Nifty Week

The Indian stock market was steady last week, trading within a narrow range. The week was shortened by a holiday on Monday, June 17, for Bakri Eid. Throughout the week, the Nifty index moved within a confined range each day, and even though it hit new highs, there was no significant intraday movement.

Volatility and Index Movement

Volatility remained nearly the same as the previous week, with the India VIX (Volatility Index) increasing slightly by 2.79% to 13.18. Nifty traded within a tight range of just 268.90 points and ended with a small weekly gain of 35.50 points (0.15%).

Expiry Week Ahead

This upcoming week marks the expiry for the monthly derivatives series. Recently, the market has shown signs of weariness, often forming weak patterns on daily charts. This suggests a possible pause or slight correction in the trend. According to derivatives data, Nifty may face significant resistance between 23,600 and 23,650. Therefore, even if there are modest gains, a sustained upward trend is unlikely unless Nifty breaks through this resistance convincingly.

Market Outlook

Monday is expected to start quietly, with Nifty likely to face resistance at 23,650 and 23,790. Support levels are at 23,300 and 23,180. The weekly RSI (Relative Strength Index) is 68.54, showing a bearish divergence as it isn’t rising along with the price. The weekly MACD (Moving Average Convergence Divergence) remains bullish, above the signal line. However, a spinning top pattern on the candles indicates market participants’ indecisiveness and the possibility of stalling the ongoing uptrend if it forms near a high point.

Technical Analysis

Nifty is trying to break above a small rising channel, forming higher highs but failing to achieve a clear breakout. Unless it convincingly breaks through the 23,600-23,650 zone, it may struggle to maintain a strong upward trend.

Investment Strategy

The current technical setup shows market participants’ indecisiveness and caution. This suggests not to chase upward moves blindly. Instead, use these moves to secure profits at higher levels. It’s wise to protect gains in stocks that have surged and rotate investments into stocks with promising charts and improving relative strength.

Keep leveraged positions modest and focus on rotating investments while maintaining a cautious outlook for the week ahead.

Sector Analysis

Using Relative Rotation Graphs® (RRG), we compared various sectors against the CNX500 (NIFTY 500 Index), which covers over 95% of the market cap of all listed stocks.

• Leading Quadrant: Nifty Metal Index is losing momentum. Realty, consumption, auto, and midcap 100 indices may outperform the broader market.
• Weakening Quadrant: Nifty Infrastructure, PSE, PSU Banks, Energy, and Commodities indices.
• Lagging Quadrant: Nifty Pharma, services sector, and IT indices, though IT and Pharma are improving.
• Improving Quadrant: Bank Nifty, Nifty Media, Financial Services, and FMCG indices.

Focus on sectors in the leading quadrant for potential outperformance, and be cautious with those in the weakening and lagging quadrants.