Despite last week’s nominal pullback, there remains a cause for concern given the market breadth. The Nifty continues to appear prone to retracement. To delve deeper, let’s take a look at the emerging patterns and the possibilities they hint towards in the forthcoming weeks.
One of the significant observations of last week was that while the headline number Nifty50 witnessed a constructive week with incremental pulls, the overall market breadth stayed highly unsatisfactory. A total of 39 of Nifty50 stocks ended in the red, indicating the absence of a similar trend across the board. This contradictory movement of the Nifty50 vis-a-vis the broader universe raises the alarm of an upcoming retracement.
Furthermore, evident contraction in the market breadth is an indication of large- and mid-cap stocks’ underperformance. Despite optimistic advances on the Nifty50, more than a substantial number of stocks are struggling. Market participants must, therefore, consider this as a potential warning signal.
Analysts, while considering these aspects, are highlighting the importance of caution in the week ahead. They suggest that a stronger upward move can only be expected if the breadth improves, offering broader participation. This implies that if Nifty50 continues to march northward without the support of a wider spectrum of stocks, the market’s resilience to any potential downfall would be relatively weaker.
Another critical aspect to perceive is the FII activity. Foreign Institutional Investors (FIIs), typically the drivers of Indian market sentiments, have been increasingly subdued of late. Last week saw altered behavior with DIIs taking some control, though the volume of buying was relatively less. An absence of robust buying from FIIs and DIIs might lead to a challenging scenario for the Indian market.
Technical charts, on the other hand, continue to show Nifty50 in an upward trend. The Relative Strength Index (RSI) is also above its threshold, indicating a strong bullish sentiment. However, the lack of support from market participants could make the Nifty50 vulnerable to quick retracements.
Considering these cumulating factors, a cautious approach is advised for market participants in the upcoming week. Incremental purchases can be considered but both long- and short-term investors should focus on protecting profits rather than aggressive buying. It’s crucial to monitor the market breadth closely and braces ourselves for possible turbulence.
Lastly, weekly options data recommend a wider than usual trading range. The options data indicated a trading range between 15,000 to 16,000 levels. A breach in this range may provide the requisite trigger and indicate the future course of the market. Therefore, closely tracking the Nifty’s movement within this bracket could be crucial in formulating the right strategy.
Although the Nifty50 index portrays a positive intensity, lack of support from broader market participants and potential warning signals cannot be discounted. Documenting these patterns can prove to be instrumental in ensuring profitable trades and safeguarding against unnecessary risks in the following week.
