the sharp low end of the market; A volatility spike signals caution ahead

Markets saw a sharp and sustained decline during the week, ending decisively in the negative. After initially trying to stabilize, the Nifty faced sustained selling pressure which intensified in the latter half of the period.

The index traded in a wide range of 1,191.80 points, oscillating between 24,303.80 and 23,112.00. Volatility remained elevated, with the India VIX rising 13.91% during the week after rising nearly 45% the previous week, reflecting heightened risk perception amid rising geopolitical tensions. By the end of the week, the Nifty registered a net loss of 1,299.35 points (-5.31%).

Structural view and main support
From a structural perspective, the market has entered a technically weak phase. The Nifty decisively breached its 100-week moving average at 24,448, which served as a strong intermediate support earlier. This breakdown changed the medium-term structure and shifted the bias to the downside until the index quickly recovered these levels.

With volatility rising sharply and geopolitical developments remaining the primary trigger, any rebound attempts are likely to face strong resistance near 24,400-24,500, which is in line with the 100-week MA breach. A sustained move above this area is necessary to stabilize sentiment; Failing that, markets are prone to sustained corrective pressure.

Immediate market estimate

Looking ahead, markets may start next week cautiously, as participants continue to react to global developments and elevated volatility. Immediate resistance levels are placed at 23,500 and 23,750, while support is seen at 23,000 and 22,710.

Technical indicators

The weekly RSI is at 29.06, slipping into oversold territory and forming a new 14-period low. While there is no visible divergence, an oversold reading suggests that an intermittent technical pullback cannot be ruled out.

The weekly MACD remains below its signal line, continuing in negative territory and reflecting continued bearish momentum. The week has also resulted in a large bearish candlestick formation, confirming strong selling pressure.

A pattern analysis of the weekly chart shows that the index broke out of a broad consolidation pattern that was developing near the highs, followed by a failure to hold above the 50- and 100-week moving averages. Nifty has closed below the lower Bollinger band. A temporary pullback within the band is likely, but the current price action keeps the technical structure weak.

Strategy for next week
Given the sharp rise in volatility and breach of key support, market participants should adopt a cautious and defensive approach in the coming week. Fresh aggressive buying should be avoided unless the index shows signs of stabilizing above recently broken support levels.

Traders should focus on protecting profits, maintaining disciplined stops and adopting a stock-specific approach rather than aggressive index-based positions. Until volatility subsides and Nifty reclaims the 100-week moving average, risk management and selective participation should remain the strategy of choice.

Field related operations
In our look at Relative Rotation Graphs® (RRG), 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.

Leading quadrant: Energy, Financial Services, PSE, Pharma, Nifty Bank, PSU Bank, Infrastructure and Metal indices. Although most companies may continue to outperform, all but pharma, PSE and energy are decelerating in relative terms.

Weak quadrant: Nifty Services, Midcap 100 and Auto Indices. It may see individual stock-level strength but is likely to lag overall.

Quarter legging: Nifty IT and Realty indices continue to underperform, while FMCG shows improvement in relative momentum.

Correcting Quadrants: The Nifty Media moves strongly within this quadrant, indicating a steady improvement in relative momentum.

Important Note: RRG™ charts show the relative strength and momentum of the sector against the Nifty 500 and should not be used directly as buy or sell signals.