The National Stock Exchange of India’s benchmark index, Nifty, has indeed shown some considerable signs of fatigue as it registered a marginal gain of 0.6% this week. Moving into the week following, the investing community would need to tread cautiously and guard their profits while also keeping a keen eye for relative strength. These recent events inevitably warrant a comprehensive analysis to suss out potential implications for traders and investors alike in the crucial week ahead.
To begin with, Friday’s session saw Nifty show traces of fatigue, forming a lower high yet carrying a bearish undertone. As the week ahead approaches, oscillators on the weekly charts have indeed displayed a bearish divergence. This divergence suggests a potential weakness in the offing for Nifty. Despite this, the Relative Strength Index (RSI) has stayed stationary at 70.45, indicating an overbought market, thus, providing some relief.
Next, it is vitally important for market participants to hedge their exposure diligently by adopting a highly selective and cautious approach towards fresh purchases. Stocks showing relative outperformance should be the top choice for investors. The persistent selling by foreign portfolio investors has also added to the growing concerns.
Analyzing sector-wise performance, information technology and pharma sectors showed impressive strength, reflecting positive bias. However, banking and realty sectors took a hit, revealing weakness. Therefore, investors should consider moving away from weak sectors to relatively stronger ones.
Volatility is another significant aspect that can’t be overlooked. India VIX, the measure of market’s expectation of volatility, displayed a decline of 5.65% to 13.2875, which traditionally means reduced fear amongst the investors. However, a lower VIX can also indicate complacency which, paired with an overbought market, calls for protective measures.
Looking forward, the 17,000 and 17,150 levels will act as major resistance for NIFTY in the week ahead. If Nifty retraces from these levels, investors might witness the beginning of a much-needed correction. On the downside, the 16,780 and 16,750 levels will provide some support.
Finally, the pattern analysis provides significant insights. Most recently, the Nifty showed a clear upward gap from the 16,782 to 16,824 levels. If this gap is not filled, it could lead to more substantial consolidation in the near future.
To conclude, despite the evident signs of fatigue, the markets are showing resilience, largely due to inherent strength in information technology and pharma sectors. A rotational approach is advised wherein traders can incline towards sectors and stocks reflecting relative strength. Furthermore, as the NIFTY approaches the week ahead, maintaining vigilance and banking profits will be paramount, considering that the potential for a downside movement cannot be ruled out.
