ET CONTRIBUTORSThe markets extended their gains for the third consecutive week, with the NIFTY breaking above the 18880 level and closing at a new all-time high. This has pushed the markets into an overbought zone, but also raised the support levels higher.
The NIFTY traded within a range of 268.25 points during the past five sessions. The index ended the week with a net gain of 232.70 points (+1.20%).
Based on derivatives data, there is high accumulation of open interest near the 19800-19900 levels, which could result in strong resistance for the markets in the coming days. Despite this, volatility dropped with the INDIAVIX decreasing by 7.37% to 10.38 on a weekly basis. These low levels of volatility could expose the markets to profit-taking bouts.
In the upcoming week, the markets are expected to start quietly with increasing volatility. Resistance levels are at 19700 and 19865, while support levels are at 19310 and 19200.
The weekly RSI is 71.87, indicating a mildly overbought situation. The MACD remains bullish with accelerating momentum in the current uptrend.
Overall, the technical structure of the markets remains positive, and there are no major indicators suggesting a correction. However, caution should be exercised due to the low levels of VIX, which could lead to profit-taking. The recent price action has increased support levels to 19000-19200. Sectors expected to perform well include IT, select midcaps, Energy, Metal, and Pharma. It is recommended to be selective with fresh purchases and closely monitor profits at higher levels.
In the analysis of Relative Rotation Graphs (RRG), there have not been significant changes in the sectoral setup compared to the previous week. However, the Nifty Realty, Auto, Consumption, and Midcap indices continue to outperform the broader markets.
Nifty PSE, Infrastructure, and FMCG index are lagging behind. The Nifty Bank, commodities, financial services, and Services sector indices are also lagging but show improving relative momentum.
The Nifty Metal, Media, and Energy indices are comfortably placed in the improving quadrant. The Energy index, however, is losing relative momentum against the broader markets.
Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.
(The author is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara.)