Pro Market Outlook | Benchmarks touch 52-week highs as markets eye US deal

Sectoral performance painted a mixed picture. The IT index led the charge with 3 percent gains, followed by PSU Bank stocks adding 2 percent, while Metal and Media indices rose 1.5 percent and 1.3 percent respectively. In contrast, FMCG and Auto sectors witnessed profit-booking, declining 0.5 percent each.

Despite the week's positive close, intraday trading told a more cautious story. Geopolitical tensions and profit-taking weighed on sentiment, leaving Indian markets with the lowest gains among global peers during the period.

The commodity markets witnessed dramatic moves, particularly in precious metals, which suffered their steepest single-day decline in over a decade. Meanwhile, crude oil prices surged sharply following fresh sanctions imposed by the US and EU on Russian oil companies.

Looking ahead, market momentum is likely to remain anchored to corporate earnings announcements and developments on the US-India trade front. Encouraging signals from US-China trade negotiations suggest an agreement may be imminent, which should continue supporting positive sentiment across global markets.

A structurally weak rally

The Nifty closed the week in positive territory, though it finished below its opening levels. While readings from this holiday-shortened week typically carry less significance, this particular week proved eventful due to mounting speculation about an imminent trade deal between the US and India, which sparked considerable market activity on the first day of Samvat 2082.

The possibility of a deal may indeed be drawing closer, but investors appear cautious about getting ahead of themselves without concrete confirmation. This prudence resulted in a pullback on Friday as the market sought clarity before committing to further gains. That said, current data points suggest some short-term overbought conditions, though they don't signal an end to the medium-term rally.

A particularly noteworthy development has been the sustained activity by foreign institutional investors, who covered short positions for the seventh consecutive day. This steady unwinding has nearly halved their net short position in index futures, reducing it from 194,000 contracts to 106,000. The directional nature of this movement is unmistakable—hedges are being removed as market sentiment and momentum shift.

From a seasonal perspective, the period through January typically proves bullish for markets, suggesting there could be additional short covering ahead. For now, as we await a test of the upper end of the trading range, this trend bears close monitoring.

Source: web.strike.money

The 20-day advance-decline ratio has only recently begun to recover from its lower threshold, highlighted by the red lines on the chart. This reveals that the broader market has been underperforming relative to the Nifty in recent sessions—a concerning divergence in market behaviour.

In theory, a sustainable rally requires widespread participation across the market before it reaches exhaustion. The current pattern, where benchmark indices advance while broader market breadth lags, represents an unhealthy divergence that should eventually resolve itself. For the rally to maintain its strength, this gap in performance needs to close, with the broader market catching up to match the Nifty's momentum.

However, if this divergence persists much longer without correction, it could serve as an early warning signal for the market. A sustained lack of broad-based participation often precedes periods of consolidation or correction, making this a key indicator to monitor in the coming sessions.

Source: web.strike.money

In the short term, the percentage of stocks generating RMI (Rohit Momentum Indicator) buy signals has begun to decline from its peak. The chart illustrates similar patterns from previous instances, providing useful context for interpreting the current setup.

When a large number of stocks simultaneously display buy signals on the momentum indicator, it typically indicates that the market has reached peak momentum—a point of maximum strength. As this percentage subsequently declines, it suggests that momentum is beginning to reverse. In recent market action, such reversals have often preceded corrections.

However, it's important to recognize that in a sustained bull market, these signals can occasionally prove to be false alarms. The current technical setup does point toward a potential correction, but confirmation is key. The critical test will be whether we see follow-through selling below the July high of 25,670. A decisive break below that level would validate the correction scenario.

Conversely, if the index holds above this support level, it would indicate that the upward trend remains intact and the rally has room to continue. For now, it's a wait-and-watch situation as the market navigates this inflection point.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended higher by +0.33% this week and closed at 25795.15

Weekly RRG:

Leading Quadrant: Nifty Auto and Nifty MNC are experiencing continuous deterioration in momentum, though their relative strength has shown a marginal uptick. These sectors could exhibit weakness once their relative strength begins to deteriorate. Meanwhile, Nifty PSU Bank and Nifty Metal continue to gain both momentum and relative strength.

Weakening Quadrant: Nifty Consumer Durables entered the weakening quadrant this week due to deteriorating momentum and relative strength. Nifty Infrastructure continues to show improvement in momentum, but has seen no improvement in relative strength so far. If its relative strength fails to improve next week, it could slip into the lagging quadrant.

Improving Quadrant: Nifty IT is the only index in the improving quadrant, demonstrating significant gains in both momentum and relative strength this week.

Lagging Quadrant: Nifty Pharma entered the lagging quadrant this week due to significant weakness in both momentum and relative strength. Nifty FMCG has experienced declining momentum and relative strength over the past few weeks, and this trend continued this week, pushing it into the lagging quadrant. Nifty Media continues to see sharp deterioration in both momentum and relative strength, with no signs of a turnaround yet. On a more positive note, other indices like Nifty Private Bank and Nifty Oil and Gas have shown an uptick in both momentum and relative strength, which is encouraging. Nifty Financial Services, Nifty Bank, Nifty PSE, and Nifty Energy are experiencing rising momentum, though there has been no improvement in relative strength yet.

Stocks to watch

Among the stocks expected to perform better during the week are Hindalco, Cholamandalam Investment, Cummins India, Vedanta, Blue Star, Shiram Financial, ONGC, Prestige Estates and Amber.

Cheers, 

Shishir Asthana