The markets have faced a tough time, closing negatively for the third consecutive week. The Nifty index has been on a downward trend, with a small relief rally on the last trading day. After a sharp drop of 1,167 points two weeks ago, the Nifty has been trading within a tighter range but remains weak overall. Over the past five days, the index fluctuated within 644 points. Meanwhile, volatility has stabilized, with the India VIX dropping by 1.38% to 13.04. The headline index ended the week down by 110.20 points (-0.44%).
Key Support and Resistance Levels
Several important levels were tested last week. The Nifty approached the 20-week moving average (MA) at 24,657 and the 100-day MA at 24,507. This creates a crucial support zone between 24,500 and 24,650. On the resistance side, derivatives data indicate significant Call open interest (OI) in the 25,000-25,100 range, which could limit market upside. If the Nifty breaks below 24,650-24,500, it could signal further weakness. Until either range is breached, the Nifty is expected to move within these defined levels.
Market Outlook for the Coming Week
Looking ahead, a quiet start is anticipated for the upcoming week. The resistance levels are seen at 25,000 and 25,130, while support lies at 24,650 and 24,450.
Market Indicators
The weekly Relative Strength Index (RSI) stands at 57.70, indicating neutrality without any divergence from price. Conversely, the weekly MACD remains bearish, trading below its signal line.
Technical Analysis
Weekly chart analysis shows that the Nifty is finding support along an extended trend line, originating from 22,124 and connecting higher peaks. This trendline, alongside the 20-week MA and 100-day MA, makes the 24,500-24,650 zone a critical short-term support level. A violation of this zone could lead to further weakness. The market is likely to remain range-bound unless either the upper resistance (25,000) or lower support (24,500) is broken. Until then, profit-taking may occur at higher levels within the 25,000-25,100 range.
Sectoral Shifts and Investment Strategy
Recent sectoral shifts may change market leadership. Sectors like Banks and Financial Services, along with Energy and Consumption, are expected to improve their relative strength. Investors are advised to take a selective approach while keeping overall leverage modest.
Relative Rotation Graphs (RRG) Insights
According to Relative Rotation Graphs, the Nifty IT, Pharma, Consumption, FMCG, and Services Sector indices are currently in the leading quadrant. However, most, except for the Services Sector Index, are experiencing a slowdown in relative momentum against broader markets.
The MidCap 100 and Nifty Auto Index are positioned in the weakening quadrant, likely continuing to lag behind. Meanwhile, sectors such as Energy, Commodities, PSE, Realty, Nifty Bank, Infrastructure, Metal, and PSU Banks are in the lagging quadrant, though many show signs of improving momentum, except for Infrastructure and PSE.
The Nifty Financial Services Index is now in the improving quadrant, suggesting potential outperformance, while the Media Index is still leading but has started to lose momentum against the Nifty 500 index.
(Important Note: RRG charts display the relative strength and momentum of stock groups compared to the Nifty 500 Index and should not be used as direct buy or sell signals.)
(The author is a CMT, MSTA, Consulting Technical Analyst, and founder of EquityResearch.asia and ChartWizard.ae.)
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