With Trump’s tariff deadline approaching, Nifty lost the upside momentum towards the end of the last week, apparently putting an end to the recovery rally that has been in play since the early part of August. One could also say that the three per cent rise in such a period was reason enough to bring in profit booking as event risks loom ahead.
However, a soft VIX suggests that traders have not yet priced in large volatility. Incidentally, that has been the case even when the Nifty was heading lower prior to this recovery. Yet, a mid-week holiday presents potential for knee-jerk moves.
The broader market turns lower, but no alarms yet
While last two days declines have brought Nifty 50 within touching distance of its 10 day SMA, 38% of its constituents have slipped below their respective 10 day SMA, while 34% of the constituents of Nifty 500 have slipped below this key short term benchmark. At 8%, Bank Nifty has the fewest constituents above this MA, while Nifty IT index, with 90% constituents above the this MA is the at the other end of the spectrum.
Meanwhile, Index Future proportion held by FIIs has improved to 10.7%, with Friday seeing a 5% increase in long positions, but a 2% increase in the already bulky short futures portfolio has ensured that the ratio of longs is still closer to record lows. This suggests that a recovery that was sighted on the basis of a potential short covering from FIIs is taking longer to mature.
STORIES YOU MAY LIKE
Meanwhile, Index Future proportion held by FIIs has improved to 10.7%, with Friday seeing a 5% increase in long positions, but a 2% increase in the already bulky short futures portfolio has ensured that the ratio of longs is still closer to record lows. This suggests that a recovery that was sighted on the basis of a potential short covering from FIIs is taking longer to mature.
STORIES YOU MAY LIKE
The big sectoral cues
Pharma’s reversal attempts may continue
The Nifty Pharma Index continues to show signs of a sustained reversal, having established a consistent pattern of higher highs and higher lows since mid-August. It has now logged its second consecutive weekly gain, with a recent MACD crossover lending further support to the bullish narrative.
From a derivatives standpoint, sentiment remains favourable. Approximately 15–20% of index constituents exhibit a Put-Call Ratio (PCR) below 0.5 based on Open Interest, hinting at potential short covering. Moreover, nearly half of the stocks have witnessed either long build-up or short covering over the past week, with more than 75% reflecting similar trends on Friday alone—indicating strengthening bullish momentum.
On the stock-specific front, heavyweight names such as Sun Pharma, Cipla, Divi’s Laboratories, Dr Reddy’s, Torrent Pharma, Mankind, Lupin, and Aurobindo Pharma – collectively representing around 70% of the index – are showing clear signs of trend reversal. With their average Relative Strength Index (RSI) hovering near 50, there remains considerable room for further upside.
Should this momentum continue, the index appears poised to test the 22,540 – 22,580 range in the near term.
Metal Index rebound falters at key resistance
The recent recovery in Nifty Metal Index lost momentum near the descending trendline resistance at 9,530. Friday’s session saw the formation of a prominent bearish Marubozu candle on the daily chart, signalling a resurgence of selling pressure. Technical indicators, particularly the MACD histogram on the daily timeframe, are showing signs of fatigue at elevated levels -suggesting a potential pullback may be underway.
From a derivatives standpoint, sentiment turned decisively bearish. Approximately 77% of the index constituents experienced long unwinding on Friday, erasing the earlier optimism seen during the week. Additionally, nearly 40% of the stocks saw short positions building up in their near-the-money call options, further reinforcing the negative outlook.
On the stock-specific front, major players like Adani Enterprises, JSW Steel, Hindustan Zinc, Vedanta, and Tata Steel also printed bearish Marubozu candles, pointing to continued downside risk for both individual names and the broader index.
Should this weakness persist, the index could potentially slide toward the 9,290 support level in the near term.
First published in Financial Express
