Nifty Enters Uncharted Territory; Exercise Caution to Safeguard Profits at Higher Levels

Nifty Enters Uncharted Territory; Exercise Caution to Safeguard Profits at Higher Levels

After testing the previous resistance level of 18,887 multiple times over the past five sessions, the Indian equity markets finally experienced a long-awaited breakout and closed near the weekly high point. Although the market breadth showed some improvement, volatility remained relatively low.

During the week, the trading range widened as the Nifty moved within a range of 555 points. However, the financial sector continued to underperform compared to the broader Nifty index. The headline index closed the week on a strong note, posting a net gain of 523.55 points or 2.80% weekly. Additionally, as the month came to an end, the Nifty recorded a net monthly gain of 654.65 points or 3.53%.

These developments indicate positive momentum in the Indian equity markets, with the index surpassing the previous resistance level and closing the week and month with notable gains. Despite some underperformance in the financial sector, the overall market performance remains strong.

The banking and financial sector has significantly underperformed the Nifty50 index up until now. However, Bank Nifty has ended the recent period on a strong note and appears to be on the verge of a breakout. To ensure a sustainable breakout, Bank Nifty must confirm this move by aligning with the Nifty index and attempting a breakout together.

The Nifty index has raised its support level to 19,000 based on derivatives data analysis. If there is any consolidation or market correction, this level is expected to provide support to the index, preventing a significant decline.

These observations suggest that the banking and financial sector’s performance is improving, and there is potential for a breakout in the Bank Nifty. However, confirmation and alignment with the broader Nifty index are essential for a sustained upward move. Traders and investors should closely monitor these levels and market dynamics for potential opportunities and further market direction.

Monday is expected to bring a positive start to the week, and the Nifty index mustn’t slip below the 18,900 level to confirm the breakout. Resistance levels for the coming week are anticipated at 19,280 and 19,400, while support levels are likely to be found at 18,900 and 18,680. As the index is trading in uncharted territory, the trading range is expected to be wider than usual.

The weekly Relative Strength Index (RSI) is currently at 68.14, indicating a neutral stance without any divergence against the price. The weekly Moving Average Convergence Divergence (MACD) is positive and trading above its signal line, reflecting a positive momentum. The pattern analysis of the weekly chart indicates that the Nifty has attempted a breakout by surpassing and closing above the previous resistance level of 18,887. This level is now expected to act as a support in case of any consolidation.

Derivatives data reveals a significant buildup of open interest for put options at 19,000, making the 18,900-19,000 zone an immediate support area for the market. To confirm and sustain the current breakout, the Nifty will need to remain above this level. Traders and investors should closely monitor these support and resistance levels, along with the behavior of indicators like RSI and MACD, to gauge market strength and potential further movements.

If the market continues its upward trend, we can expect some sectors with high beta stocks to show relative outperformance. This includes sectors such as banks, automobiles, and energy. Additionally, sectors like IT and pharmaceuticals may also perform well. While chasing the upward move, it is recommended to focus on specific stocks rather than broad-sector bets. It is also important to remain cautious and protect profits at higher levels.

As for the sector performance, the Nifty FMCG, Financial Services, PSE, and BankNifty sectors are currently in the weakening quadrant, indicating no signs of improvement in their relative momentum compared to the broader Nifty 500 index. The Infrastructure Index is also in the weakening quadrant, but it is showing some improvement in its relative momentum.

Considering these factors, a positive outlook is advised for the day, but it is important to closely monitor sector dynamics and individual stock performance while exercising caution to protect profits.

The Nifty Pharma index has moved into the weakening quadrant, indicating a loss of relative momentum compared to the broader market. Similarly, the PSU Bank, Services Sector, and Commodities indices remain in the lagging quadrant, suggesting continued underperformance.

The IT Index is also in the lagging quadrant, but it is showing strong improvement in its relative momentum, indicating a potential turnaround and better performance in the sector.

The Energy Index is losing its momentum while still positioned in the improving quadrant, implying a slight slowdown in relative strength. On the other hand, the Nifty Metal and Media indices are comfortably placed in the improving quadrant, indicating a positive trend and relative strength compared to the broader market.
These sector-wise observations provide insights into the relative performance and momentum of different sectors. Traders and investors should consider these dynamics while making investment decisions and assessing sector-specific opportunities.