Dalal Street Week Ahead: Avoid Aggressive Long Positions; Focus on capital preservation

Markets continued to trade under pressure during the week, showing a clear downward bias and ending on a negative note. The Nifty oscillated in a wide intra-week range of 994 points, moving between 23,465.35 and 22,471.25 before settling near the lower end of the range. Volatility increased further; The India VIX, which had already rallied sharply in the previous week, extended its upmove and gained another ~17.5% on a weekly basis, indicating heightened uncertainty. Despite this corrective phase, Indian equities continued to relatively lag behind weaker global peers. Nifty ended the week with a net loss of 294.90 points (-1.28%).

From a structural point of view, the Nifty has breached key short-term support levels and has slipped lower, indicating a deterioration in the near-term trend. The index is now trading below its 50-week and 100-week moving averages and approaching critical support bands.

The broader framework indicates a transition from integration to a broader corrective phase. With volatility widening and prices weakening, the market remains vulnerable to further downside unless it quickly recovers lost levels.
Any pullback towards the overhead resistance zone is likely to face selling pressure, while a sustained trade below immediate support could trigger an extended decline.
Given the truncated trading week, markets may start cautiously with occasional volatility. Immediate resistance levels are placed at 23,150 and 23,450, while support comes at 22,450 and 21,700.

The weekly RSI is at 27.11, placing it in oversold territory. While it has formed a 14-period low, it remains neutral and shows no apparent bullish divergence against price, indicating continued weakness.
MACD remains bearish and positioned below its signal line, momentum is still negative. A strong bearish candlestick formation on the weekly chart reinforces the prevailing downside pressure.

Pattern analysis shows that the index has slipped below its short-to-medium-term moving average, while the longer-term 200-week moving average near 21,700 is now acting as a crucial support. An inability to hold above the previous breakout zone indicates a distribution high. The index also pulled below its overhead resistance level.

Given the current setup, a cautious and defensive approach is strongly recommended for the coming week. Traders should avoid aggressive long positions and instead focus on capital preservation. Any rebound should be used more to ease the situation than to initiate fresh exposure. A highly selective, stock-specific approach with rigorous risk management is advised while closely monitoring volatility trends.

In our look at Relative Rotation Graphs®, we compared various sectors against the CNX500 (NIFTY 500 Index), which represents more than 95% of the free-float market cap of all listed stocks.

The relative rotation graphs (RRG) show that the Nifty PSE, Pharma, Energy and Infrastructure indices are within the leading quartile. They are likely to outperform the broader markets relatively. Metal, PSU and Financial Services groups are also within this quadrant. While they can also relatively outperform, they are seen to give up their relative momentum against the broader markets.

The Nifty Bank Index has moved into the weakening quadrant. Auto and Midcap 100 indices are also in this quadrant. However, the Midcap 100 index is improving at a relative pace.

The Nifty services sector index has moved into the lagging quadrant. Realty and IT groups also pale within this quadrant and may collectively underperform the broader Nifty 500 index.

The Nifty Media and FMCG indices are in the improving quadrant. 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.