Nifty review: A cautiously optimistic week ahead

The domestic equity benchmark indices rallied to near the 17700 zone. The Nifty tested the prior day high. It closed at 17698.1 with 39.15 points of 0.22 per cent gain. The Metal index is the top gainer with 1.64 per cent. The IT, Pharma, and Media indices are down by 1.15 per cent. All the other sectoral indices advanced by an average of 0.4 per cent. The broader market breadth is at 1:1 as 961 advances and 912 declines. About 46 stocks hit a new 52-week high, and 70 stocks traded in the upper circuit. Zomato, Tata Elxsi, and Reliance are the top trading counters today.

The Nifty continued its rally for the fourth successive week. It gained 296.7 points or 1.71 per cent during the last week. It traded in a 365 points range and slightly increased its weekly range. For the second day, it oscillated around the sloping trend line resistance. The RSI has closed in an extremely overbought zone of 80+ zone. The 75-minute chart further developed the negative divergence. After a first hour initial decline, it recovered and closed in the positive territory. This is the longest winning streak of four weeks after December 2021. And also, it is the highest gain of 16.67 per cent in the current swing. During the eight-week-long rally, the sector rotation happened perfectly.

Many stocks have broken out of the basing formations. Some of the leading stocks are in the overbought condition, like the index. Even aftermarket rallied 16 per cent from the low, and there are concerns remain. Apart from the overbought condition and extended rally, very few stocks in the Nifty 50 are in the leading quadrant. A majority of stocks are in the weakening or lagging quadrant as many as possible indicators are in extreme overbought conditions.

To come out of this overbought condition, the benchmark index needs to correct reasonably. The volumes are lowest in for the last one month. This declining volume on a strong rally is another concern. As mentioned earlier, 17730 will act as crucial resistance, and above, the rally will continue to the prior major swing high of 18114. On the downside, only in case of the Nifty falls below the prior bar low will give us some early signals. Let us be cautiously optimistic.