The Indian economy continues to display elements of volatility as the Nifty50 showcases evident signs of fatigue. This recent observation reflects a sense of exhaustion in the market’s bull run, signaling risk-averse investors to safeguard their profits and explore opportunities with relative strength.
An examination of the declining volume trend, the bearish divergence on the Relative Strength Index (RSI), and the divergent formation on the Moving Average Convergence Divergence (MACD) index paints a clear picture of this fatigue.
On the weekly charts, you’ll note that the Nifty50 persists to trade positively above its 20-week moving averages (WMA) and the 50-day moving average (DMA). However, this ongoing bullishness doesn’t warrant complacency. As a matter of fact, even though the broader structure of the Nifty50 market remains bullish, the weakening internal strength could potentially lead to abrupt volatility and unpredictable pullbacks.
The coming week predicts a range of 17,500–18,000 based on the Options data available, with the probability of the market remaining in a consolidated phase. With that, it’s essential to stay vigilant about the global cues and domestic macroeconomic data that could imply a correction in the Indian market.
When observing the stocks that have shown their relative strength in times of market consolidation or correction – namely FMCG, IT, and Pharma, are sectors that have exhibited durability. As such, investors should maintain a defensive approach while transacting in these sectors during periods of volatility.
In regards to the Relative Rotation Graphs (RRG), the Nifty Next50, Nifty Energy, and Nifty Pharma indexes still maintain their strong position. A relative strength analysis of these sectors will provide investors with significant insight.
Moreover, the yield on the 10-year benchmark paper closed at 6.19%. This rise in bond yields also provides important context for stock market shifts, mainly, its impact on firms whose equity values can swing drastically with shifts in interest rates.
Despite the evident signs of fatigue, the Nifty50 still remains bullish on the weekly chart. This has largely come down to a robust financial sector and a resurgent infra sector, buttressed by renewed government emphasis on infrastructure development.
The week ahead will be dominated by continued global monetary policy signals, impending third-quarter corporate earnings announcements, and the unfolding geopolitical situation in Europe. These multiple high-stakes uncertainties are likely to ensure that investors remain on their toes for a while.
In light of these combinations, investors are encouraged to exercise caution, adopt a sector-specific strategy, and consider investing in sectors with relative strength during dips. More importantly, they should cultivate an investment approach towards sectors or stocks that are showing relative resilience or out-performance in volatile market scenarios.