By Anand James
The shortened nature of the week ahead seeks to add a different dimension to the trend, which has so far seen a continued rise from the result day’s lows, but with systematically lower trading ranges, which the traders are finding it difficult to adjust to, given the large swings seen prior to election results. A new peak on Friday was not surprising, given the fact that 88% of Nifty constituents had started the day at the highest in 30 days. Most other sectors were also showing similar trends, except for PSU banks and metals. But despite this, a weariness and slowdown were visible throughout the week, with an unwillingness on most days to chase prices higher. The slowdown in upside momentum is also because of a sharp fall in VIX, which has compressed the trading ranges. Many saw this as a sign of distribution to be followed by a fall, but the resultant short build-up only added more legs to the uptrend on the last working day of the week.
Mean reversion moves expected
Given the persistent bargain hunting that ensured that dips barely exceeded 23% off the peaks of the previous Friday, there is an expectation of larger upsides as we step onto the next week, which is a shortened one, with Monday being a trading holiday. However, we prefer to enter the next on a cautious note as negative oscillator divergences have emerged, with fast stochastics peaking, as well as standard deviation studies pointing to prices nearing interim extremes. This should ideally call for a mean reversion move, thus limiting our upside expectations for the time being to 23580–680. However, the turn lower may not be steep and could return to the 24130 trajectory if 23200–23050 supports restrain corrections.
With Bank Nifty, bias remains positive, and we would like to open the week on a positive note, but the shortened week as well as declining VIX could hasten the time decay, limiting the possibility of call premium expansion. We see low chances of Nifty Bank exceeding the 51000 mark this week and have our downside marker placed at 49500.
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Metal and Realty to see profit booking
An inside bar candle in the weekly time frame and a Hanging Man candlestick in the monthly time frame are pointing towards the possibility of a pullback in the Nifty Metal Index in the coming weeks. The index could get support from heavyweights like JSW Steel and Tata Steel, which remain strong on weekly charts. However, stocks like Hindzinc, Vedl, Hindalco, and Sail are looking vulnerable to profit booking next week.
The Nifty Realty Index has had a dream run since April 2023. However, the valuation in terms of technical data looks stretched. The 14-month RSI is around 90, which remains a glaring number as far as momentum indicators are concerned. Stocks like Lodha, Godrejprop, Oberoirlty, Phoenix, Prestige and Brigade, which together form around 59% of the Index, have shown initial signs of exhaustion and could lead the index on the downside.
(Disclaimer: Anand James is the Chief Market Strategist at Geojit Financial Services. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
