As the week opens, we brace ourselves for an eventful time in the Indian stock markets. Experts say that the technical setup for the Nifty index continues to be weak, and investors should be prepared for potential corrective pressure at higher market levels.
Addressing specific market indicators worth pointing out, the Nifty ended 204 points, or 1.19% lower last week. The week was characterized by the volatility indicator – India VIX – moving up by 6.98% at 20.75 level. An upward moving VIX indicates nervous sentiment among market participants, implying instability or uncertainty in the market.
Underlying the overall market sentiment, two profound patterns emerged in the weekly charts. One notable pattern was the Dark Cloud Cover pattern. The Dark Cloud Cover, a bearish reversal pattern that forms after an advance, indicates potential weakness in the market. Besides this, in the derivative data, the Maximum Call open interest stands at 17,000 followed by 16,500 levels. This translates into the fact that short covering of calls and unwinding remains evident at higher strike prices.
In regard to sectoral indices, while the Nifty Sectoral setup remains mixed, some negative implications can be seen in metals and auto sectors. Over the week, Nifty Bank lost 3.64%, Auto dropped 3.20% and the FMCG index fell 2%. Despite this, investors shouldn’t let their guards down as market breadth remains negative and weak cash market volumes persist.
Apart from these negative indications, on the brighter side, certain sectors like Pharma, Nifty Midcap 100, Nifty Small Cap 100, and Nifty IT showed positive trends indicating good entry points for investors who are looking to diversify their portfolio.
Zooming into the quantifiable levels, the possible range to watch for in the upcoming week remains between 16,000 and 17,000 levels. That being said, trading below 16,710 levels can push the index towards 16,600 and 16,500 levels.
The Relative Strength Index (RSI) on the weekly chart stands at 61.76 levels, neutral, suggesting no divergence against the price. Investors should also watch the MACD with the bearish crossover, a weak setup that suggests some downward pressure.
In summary, the market’s current technical structure suggests that there is likely to be corrective pressure at higher market levels. Despite some sectors demonstrating positive movement, it is crucial for investors to proceed with caution. As always, meticulous study combined with vigilantly tracking economic developments and market indicators will be key for weathering any potential storm in the coming week.