Despite a few days of volatility that cast doubts on the sustainability of the recovery rally, we will start the week continuing to retain positive hopes. This is reflected in the fact that 48% of Nifty 50 constituents continue to trade above their respective 10-day SMA, which though not high in absolute terms, is a big improvement from the previous week’s close when only 18% of the constituents were above this MA.
FIIs continue to hold large bearish bets
The fact that FIIs continued to pile on to short positions is a strong statement that GST-induced positivity is still not enough to let go off the bearish bias.
During the past week, FIIs that had been holding long positions in index futures reduced their exposure, sending the short-long ratio to 92.6% — the highest level recorded so far.
Nifty pauses near 50-day SMA
While last week found a continuation of a recovery that had put an end to the 6-day losing streak, the turn lower from the 50-day SMA appeared to signal that the recovery push may be over.
However, the close above the 20-day SMA on Friday, after the initial scare, suggests that there is enough risk appetite to push higher. We will need confirmation from a push above 24,870 to aim beyond 25,400.
Alternatively, the inability to close above 24,700 or a direct fall again below 24,500 could re-expose 24,075, the 200-day SMA, as well as the Fibonacci extension target of 23,860. Such an outcome, though, is not anticipated as is, given the muted VIX, which has steadfastly declined through last week to trade near 10.78.
Broader market is shaken, but there are green shoots
Nifty Auto continued its outperformance, being among the few indices which are now above the 50 day moving average. Indices include Nifty Consumer Durables, Nifty FMCG, and Nifty Metal, while Nifty Auto is trading 8.2% above its 50-day SMA.
Meanwhile, IT found the strongest turn lower, as none of the constituents are above 10-day SMA, which is significant, as 80% of them were above this MA at the start of the last week.
Nifty IT Index appears vulnerable
The Nifty IT index has slipped below a key inverted-flag support, suggesting the downtrend may continue. The MACD is on the verge of dipping under its signal line, and the RSI on both daily and weekly charts still has room before hitting oversold levels—all of which point to additional weakness ahead.
From a derivatives perspective, nearly every stock in the sector saw short positions build in both near in-the-money and out-of-the-money call options. About 90% of sector stock futures also recorded net short additions on Friday and over the course of the week, reinforcing a bearish outlook for upcoming sessions.
Looking at individual names, TCS, Infosys, HCL Tech, Wipro, and Tech Mahindra have either breached their trendline supports or are approaching a bearish MACD crossover. These names could drag the index lower toward 31,425, with a further drop possible back down to 33,100.
Metals Index’s break out carries momentum
The Metals index bounced off its 100-day moving average earlier this week and has since cleared the 50-day moving average, overcoming wedge resistance at 9,472—an encouraging sign of renewed buying pressure.
Momentum indicators support the upswing, as the MACD crossed above its signal line on both daily and weekly charts. This crossover highlights strong bullish momentum and increases the odds of continued gains.
Technically, the Index may first see some profit-taking and consolidate around 9,500 before resuming its advance toward 9,880. Key stocks likely to lead this rally include JSW Steel, Tata Steel, Hindustan Zinc, Vedanta, Hindalco, Jindal Steel, and Lloyds Metals.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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