Dalal Street Week Ahead: Volatility to Stay Elevated, Traders Urged to Stay Nimble
Indian markets faced a significant downturn last week, with heightened volatility leading to a notable decline in Nifty. Here’s a breakdown of the week and what’s expected in the market moving forward:
– Market Performance:
– Nifty closed with a net loss of 645.70 points or -2.51%.
– The index experienced a sharp decline, moving within a wide intra-week range of 733 points, between 25,653 and 24,919.
– India VIX surged 24.80% to 14.19, reflecting increased risk perception and uncertainty.
– Technical Analysis of Nifty:
– Nifty’s current technical structure shows a clear breakdown. After failing to confirm a breakout, it has slipped below the trendline established in September 2024.
– The index now hovers near the lower Bollinger Band, aligning with the 50-week moving average at 24,758.
– Key support levels are being tested in the 25,000–25,150 range, which includes the 200-DMA. A convincing breach could lead to further corrective moves.
– Market Sentiment and Expectations:
– With the upcoming Republic Day holiday on Monday, traders may witness a tentative start next week, potentially aided by a technical rebound. However, volatility is expected to remain high due to the monthly F&O expiry on Tuesday.
– Immediate resistance levels stand at 25,320 and 25,650, while support levels are set at 25,000 and 24,800.
– Momentum Indicators:
– The weekly RSI is at 44.47, suggesting a neutral stance, despite marking a new 14-period low, indicating no divergence.
– The weekly MACD points to bearish momentum, remaining below its signal line. A long black candle on the weekly chart signals strong selling pressure.
– Nifty has decisively broken below the falling trendline, which typically signals bearish implications.
– Trading Strategy for the Week Ahead:
– A cautious, stock-specific approach is advisable. While short-term oversold conditions may facilitate a bounce, the overall market structure appears weakened.
– Traders should avoid aggressive long positions, focusing on profit protection. Any upside should be utilized to lighten positions or explore low-risk short opportunities if resistance levels hold.
– It is essential to manage risk tightly and maintain reduced exposure ahead of the anticipated expiry volatility.
Sector Analysis
Utilizing Relative Rotation Graphs (RRG), here’s how various sectors compare against the CNX500 (NIFTY 500 Index):
– Leading Quadrant:
– Nifty IT Index, Financial Services Index, Midcap 100, PSU Bank Index, Bank Nifty, and Metal sectors show strong relative performance.
– Weakening Quadrant:
– Infrastructure and Nifty Auto Index are positioned in the weakening quadrant, indicating declining relative strength.
– Lagging Quadrant:
– Nifty Energy, Realty, and FMCG Indices are currently underperforming compared to broader markets.
– Pharma Index:
– The Pharma Index has recently managed a U-turn, moving back into the improving quadrant, although it follows a loss of relative momentum.
Conclusion
In summary, traders are advised to stay nimble amid expected volatility on Dalal Street. While a tentative rebound may be possible, the overall bearish structure warrants a cautious approach. Monitoring key support and resistance levels, alongside sector performance, will be crucial for informed trading decisions in the upcoming week.