In the previous update, we observed that the Nifty 50 index was on the verge of a breakout and could likely advance to the next target zone of 26,700-27,500 range. The breakout from the 24,300-26,300 range remains elusive. In this update, we will discuss the short-term outlook and targets for the Nifty 50 index.
As always, we’ll also take a look at sectors and market segments to avoid and the ones that are showing some resilience.
Nifty short-term outlook
Let us get started with the daily chart of the Nifty 50 index to assess the current price action and what to expect. The weekly chart of the Nifty 50 index is featured below. Notice how the index has been confined to the broad range of 24,300-26,300 for more than a year now. There were multiple failed attempts to breakout to the upside. This is a sign that this upper boundary is a strong hurdle to get past.
As observed in prior updates, the next major target for the Nifty 50 index is the 26,700-27,500 zone; this is not too far away from the upper end of the resistance zone at 26,300. The risk-reward for bullish trades are just not compelling enough to risk fresh exposures at this juncture.
The index has to breakout above the 26,400 zone and spend at least a few weeks there to suggest the scope for much higher levels. We’ll take a look at higher targets when this breakout happens. For now, the Nifty 50 index is likely to remain range bound with volatile back and forth action between the trading range.
A breach of the lower end of the range at 24,300 would be a sign of weakness and could open fresh downside targets. Again, we shall come up with regular updates with revised targets once the index moves out of this range.
From a short-term perspective, the immediate support levels for the index are at 25,400 followed by the 25,100-25,200 zone. If the index settles below 25,100, then a drift all the way down to 24,400-24,600 is likely.
The PF-X% breadth indicator that we track closely has drifted lower from overbought levels, suggesting the possibility of short-term weakness to persist. The sustained negative divergence between this indicator and the price action is not a healthy sign either.
As flagged in several prior updates, the sustained underperformance of the broader markets remains a cause of concern. There are however a few green shoots to take note:
- The percentage of stocks trading above their 21-day moving average from the MidSmallCap 400 index recovered smartly when the Nifty 50 index spiked post the US tariff deal announcement last week.
- The percentage of stocks trading above their 200-day moving average, which is a longer-term breadth indicator, has also recovered for the broader markets from the oversold level of 23% to current levels of 35%, suggesting some improvement and some buying interest creeping in.
So now, we’ll take a closer look at the Nifty MidSmall Cap 400 index to understand the current technical structure and relative performance of this index versus the Nifty 50 index.
Nifty MidSmall Cap 400 Index
Though the short- and long-term breadth indicators for the Nifty MidSmall Cap 400 index has recovered, it is not convincing enough to consider exposures in this space. As mentioned in the previous update, wait for this index to breakout above the resistance at 20,800 before committing investment in the broader market. Along with the breakout above 20,800, also check the relative performance of this index in relation to the Nifty 50 index.
The key support for this index is at 18,000-18,300 range. A close below around the key support zone at 19,000 could trigger to this major support zone.
For now, it is still a wait and watch game as far as broader markets are concerned. No compelling reason yet to consider exposures here.
Other indices
Now, we’ll take a look at trends in some of the other key indices.
Nifty PSU Bank Index: This is one of the few sectoral indices that is trading almost at all-time highs. This index is also a strong outperformer in relation to the Nifty 50 index. The major long-term target for the PSU Bank index is 11,000-12,200 zone. A fall below the recent swing low of 8,050 would be a cause of concern. Keep an eye on this sector and any improvement in the overall market sentiment could trigger a sharp move in this sector.
Nifty Next 50 Index: This index has been a rank underperformer in comparison to the Nifty 50 index. Technically, this index has been consolidating in a broad range of 65,000 to 70,600 in the past few months. Only a breakout from this range would trigger the next trending move in this index. Wait for a breakout above 70,600 and check if the index resumes its outperformance against Nifty before considering exposures.
Nifty Bank Index: As observed in the previous update, the Nifty Bank index remains a relative outperformer and the overall trend is bullish for this sector. The Nifty Bank index reached within the striking distance of the target zone at 62,500-63,000. After reaching a high of 61,675, the index cooled off last week. The outlook for this index remains bullish. Only a close below 56,500 would negate the positive outlook. On the higher side, a rally to 63,000 is likely.
Summary
There are a few green shoots in the small and mid-cap space, and this therefore needs watching. The Nifty 50 index has to breakout higher end of current range to indicate the scope for further upside. Until then, expect volatile and range bound price action within the 24,300-26,400 zone. This could be a good market for short-term swing traders who are adept at buying near support and shorting near the resistance.
