Nifty holds steady as resistance remains; cautious optimism builds for the week ahead

DCM Editorial Summary: This story has been independently rewritten and summarised for DCM readers to highlight key developments relevant to the region. Original reporting by Economic Times, click this post to read the original article.

The markets experienced a range-bound trading pattern over the past week, with the Nifty index closing slightly lower. Despite a 25 basis point interest rate cut by the Reserve Bank of India, the Nifty showed little movement, fluctuating within a narrow band of 434.8 points, ultimately ending the week with a minor loss of 16.50 points, or 0.06%. The decline in the India VIX by 11.21% indicates a phase of low volatility, while the Nifty remains in a primary uptrend but faces significant resistance at higher levels.

Currently, the Nifty is trading just above a breakout zone that has turned into support, situated between 25,900 and 26,000. The lack of broader market participation and weakening market breadth suggest caution among investors. A sustained move above 26,325 could restore momentum, while falling below 25,900 might lead to increased weakness or consolidation. Looking ahead, the markets are expected to have a quiet to modestly positive start, with resistance levels identified at 26,300 and 26,450, and support levels at 25,900 and 25,750.

In terms of market indicators, the weekly RSI remains neutral at 63.78, and the MACD is in buy mode, indicating potential for upward movement. However, the formation of a small-bodied candle with a long lower shadow suggests indecision at higher levels. While the overall trend appears bullish, caution is warranted due to the potential for mean reversion if upward momentum does not materialize.

As we approach the coming week, a selectively bullish yet cautious strategy is recommended. Investors should focus on protecting profits at elevated levels and consider fresh buying only in high-quality stocks. A stock-specific approach that emphasizes sectors with relative strength is advisable, while maintaining disciplined stop-losses and closely monitoring any breakouts or breakdowns from the current trading range. Relative Rotation Graphs indicate that certain sectors, including PSU Bank and Metal, are positioned to outperform, while others like Pharma and Media are likely to lag behind.