Dalal Street week ahead: All eyes on 21,700 make-or-break zone as Nifty braces for volatility

With continued selling pressure and a moderately weak close, markets traded with a distinctly negative bias during the short trading week. After trying to stabilize at higher levels earlier in the week, the Nifty gradually turned lower and breached key short-term support. It oscillated in a range of 758 points before closing near the lower end of the range.

Volatility eased, with the India VIX falling ~4.78% on a weekly basis, reflecting heightened panic amid global uncertainties. Nifty ended the week with a small net loss of 106.50 points (-0.47%)

From a structural point of view, the index has breached a key support zone and slipped below its recent consolidation base, indicating a short-term deterioration in the trend. The price continues to trade below the 50-week and 100+ week moving averages and is now near the critical confluence support zone near 21,700, which coincides with the 200-week moving average and key pattern support. This makes the current setup technically critical.

While the broader trend is relatively stable for now and a technical rebound with a slight trigger cannot be ruled out, ongoing weakness suggests that any further break below 21,700 could trigger an extended corrective phase. External factors such as continued geopolitical tensions in the Middle East and rising crude oil prices pose risks and may dampen sentiment, although relative outperformance by Indian equities continues.

For the coming week, the markets are likely to start cautiously with negative undertones. Immediate resistance levels are placed at 23,000 and 23,250, while support comes at 22,480 and 22,000. A sustained move below 22,000 will increase the likelihood of testing the 21,700 zone sooner rather than later.

The weekly RSI is at 26.49, placing it in oversold territory. It has formed a new 14-period low; However, it remains neutral and shows no divergence against price. MACD remains below its signal line and continues to remain in negative territory, reinforcing the existing bearish momentum.

Pattern analysis shows that Nifty has continued to move lower but is trying to show resilience at lower levels on relative terms. The price is currently tracking the lower Bollinger Bands. The index is now testing lower support by staying below key moving averages such as 50-week MA and 100-week MA. As long as the 200-week MA (~21,700) is protected, the long-term structure remains intact, but near-term technical downside is evident.

Given the current setup, the approach for the coming week should be cautious and defense-oriented. Traders should avoid aggressive new purchases until signs of stability appear near key support zones. Emphasis should be placed on protecting existing profits and adopting a highly selective, stock-specific approach.

Any pullback towards resistance levels should be used to ease positions rather than initiate fresh exposure. Overall, a guarded and risk-managed strategy is recommended while closely monitoring behavior around the 21,700 support zone.

The relative rotation graph (RRG) shows that the Nifty Pharma, PSE, Infrastructure, Metals and Energy groups are within the leading quartile. The Nifty Midcap 100 index has also moved within the leading quartile. The metal index is rapidly losing its relative momentum; However, these groups are likely to outperform the broader Nifty 500 index relatively.

The Nifty 500 index has moved into the weakening quadrant. Nifty Auto, PSU Banks and Nifty Bank Index are also within this quadrant. These groups will see a steady decline in their respective performance.

Nifty services sector and IT index look dull within the lagging quadrant; They may find themselves relatively underperforming the broader markets. The realty index is also within the lagging quadrant. However, it is seen as an improvement in its relative speed.

Nifty FMCG index and media index are in the improving quadrant. We can see that these sectors slightly improved their relative performance against the broader markets. Important Note: The RRGTM chart shows the relative strength and momentum of a group of stocks. In the above charts, they show relative performance against the NIFTY500 index (broader markets) and should not be used directly as buy or sell signals.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst and Founder of EquityResearch.asia and ChartWizard.ae is based in Vadodara. He can be contacted at milan.vaishnav@equityresearch.asia