After a reflective observation of the Nifty index in the recent week, there have been early signs suggesting a likelihood of an uptrend disruption. This trend indicates a possible shift in the equity market, which as suggested, should prompt investors to tread the financial terrain with caution.
Firstly, the bullish trend seen in the Nifty index at the start of the week seemed to signal a promising period for investors. However, this quickly changed as the stock showed signs of stagnation. There were immense distribution days with the index losing enough ground which consequently signaled the existence of a high level of distribution.
The Nifty futures closed the week at a discount of 7.50 points. Although this figure seems negligible, it is the relative discrepancy observed within the week that gives cause for concern. The volatility index, India VIX, has witnessed a decreased, reducing by three percent to settle at 17.64. Although this decrease could suggest a lower level of risk, given the broader context of trading within the financial markets, it actually indicates a decrease in investor sentiment.
Furthermore, the options data for the coming week shows higher Call writing at 15,900 and 16,000 strikes, which may act as resistance. On the other hand, there is also substantial Put writing at 15,700 and 15,800 levels which may provide the much-needed support for the index. The Put Call Ratio (PCR), which stands at 1.04, attests to this as it is a sign of a slight bearish bias in the market.
A new pattern also emerged from the market as it entered a ‘Rising Channel’ pattern. This means the market is carving higher tops and higher bottoms even after a steep rise. Such a pattern occurs when there is a staircase-like upward movement within an ascending channel.
The Relative Strength Index, or RSI, is a fundamental aspect to consider while predicting future trends. For the Nifty index, the weekly RSI is 63.67; it remains neutral and does not show any divergence against the price. The weekly MACD remains bullish as it trades above the signal line, an indication of sustained optimistic market sentiment.
In conclusion, the equity market is showing a mix of indicators- some predicting an upward trend, and some signaling the need for caution due to a possible upcoming downtrend. Though Fundamental analysts may argue that these indices are just ‘rising tides that lift all boats’, a thoughtful investor should consider these signals critical in developing strategies for the upcoming week.
Investors should adopt a cautious approach while investing in the coming week. They should closely monitor these indicators to balance the inherent risk with the potential high returns in such a volatile market. These factors coupled with global cues and Covid-19 cases should guide the investment decisions in the short term.