Last Wednesday’s steep rise put to rest fears of a strong downtrend which was indicated by consecutive days of declines. However, that Wednesday’s enthusiasm was not shared with the next two days is a sign of caution. However, despite two red candles on the Nifty, oscillators have not signalled that Wednesday’s rise was an aberration rather than a sign of explosive moves to come. While dips or flat trades are to be expected early in the week, we do not expect them to sustain. Instead, our expectations are towards continued rise targeting 26,460-26,550 initially, followed by 26,900-27,200.
Alternatively, a slippage past 26,090 could expose 25,860 or 25,700 or even 25,300 levels on the downside. That said, the smaller cap stocks are still struggling to match the index’s recent move, which in fact has been propelled by only a handful of the Nifty 50 stocks. While only 44% of the Nifty Midcap index constituents are trading above their respective middle Bollinger Band, only 27% of the Nifty Small Cap Index constituents are trading above their respective middle Bollinger Band. Sectorally, while media, realty and energy are near the bottom along this metric, banks, auto and IT stocks are near the top.
FII short covering seen
We had discussed how the hopes of FIIs returning as buyers continued to seesaw over the last few months. Last week ended with FIIs’ long short ratio of their index future positions ending at the highest in a month. On a cautious note, it needs to be remembered that this ratio had tapered off soon after the October expiry, and it is fair to expect a repeat of the same in the December series as well.
However, what is different this time is that the short positions are at the lowest since early July, even though similar eagerness was not noticed in building longs. In July, when similar short positions were seen, Nifty was near 25,450. With short covering occurring now with Nifty nearly 800 points above July’s levels, the prospects of an extended uptrend is higher. Add to this the prospects of a long build-up, which is yet to begin.
Pharma stocks set for sustained upside
The Nifty Pharma Index has maintained strong momentum since its September reversal, consistently charting higher highs and higher lows. Last week, it closed above the key resistance level of 22,750, confirming renewed strength, further reinforced by the formation of a large bullish Marubozu candle this month. Near-term projections point toward a move toward 23,500.
Derivative trends also signal optimism, with nearly 75% of pharma stocks showing short additions in near OTM put strikes and almost all stock futures registering fresh long positions week-on-week — a clear indication that traders expect continued gains.
On the stock-specific side, Sun Pharma, Cipla, Zydus Life, Divis Lab, Dr. Reddy’s, Lupin, and Ipca Labs have built firm bases and are positioned to drive the sector’s advance in the weeks ahead.
IT Sector: Bullish trend holds despite near-term fatigue
The index has staged a strong reversal since September and continues to look resilient on medium-term charts, even as signs of short-term exhaustion emerge. A pullback toward 37,100 is possible early next week, but the broader trend suggests bulls are likely to regroup and push the index higher.
Derivatives positioning reinforces this view, with 60% of stocks showing short additions in near OTM put strikes and nearly 80% of stock futures adding fresh longs week-on-week — clear evidence of expectations for further upside.
On the stock-specific front, the average RSI across leading names remains near 60, underscoring underlying strength. Counters such as TCS, HCLTech, Wipro, Tech Mahindra, and LTIMindtree have formed solid weekly candles and are poised to spearhead the next leg of gains once the initial consolidation phase passes.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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