We had a tepid end to an enthusiastic week, which saw consecutive days of up-close amidst signs of a US-Iran ceasefire deal coming into effect. While the sharp gap-down opening on Friday poured cold water on bullish hopes, the fight back from bulls in the second part of the day retained hopes of seeing the bullish structure intact.
This is further supported by the fact that, despite the volatility, 79.4% of Nifty 500 constituents closed above their respective 10-day SMA on Friday. Meanwhile, Foreign Institutional Investors (FIIs) long/short ratio in the Index Future segment edged higher to 13, thanks to a 6% week-on-week reduction in the short positions, which now stand at 2,66,010 contracts.
Nifty Pharma: Setting stage for potential trendline breakout with strong participation
Nifty Pharma appears to be transitioning into a constructive phase, exhibiting early signs of a bullish turnaround supported by both technical indicators and derivatives data. The price action on the weekly chart reveals the formation of a pinbar doji, a pattern that typically signifies rejection of lower levels and suggests that buyers are stepping in aggressively during dips.
This behaviour reflects strengthening demand dynamics and hints at a gradual shift in sentiment from bearish to bullish. On the daily timeframe, the index is steadily approaching a breakout above its downward-sloping trendline resistance, a key level that has capped upside attempts in recent sessions.
A decisive move above this barrier would serve as a confirmation of a near-term trend reversal and could open the door for further upward momentum. In addition, momentum indicators are beginning to stabilise, most notably the MACD histogram, which is showing contraction. This indicates that downside momentum is losing strength, and it raises the probability of a bullish crossover in the near future.
From a derivatives perspective, the setup further reinforces the constructive outlook. A significant portion of the segment, nearly 90% of stock futures, witnessed either long buildup or short covering during the latest trading session, suggesting that traders are increasingly positioning for an upside move. On a broader weekly basis, about half of the stocks in the index registered short covering, highlighting broad-based participation rather than isolated strength.
At the stock level, multiple heavyweights are displaying encouraging signs of accumulation and relative outperformance. Names such as Biocon, Sun Pharmaceutical Industries, Aurobindo Pharma, Laurus Labs, and Lupin are likely to act as key drivers, supporting the index’s upside potential. If current momentum sustains and resistance levels are convincingly breached, the index could potentially advance towards the 24,900 zone in the coming sessions.
Overall, the technical structure, combined with supportive derivatives positioning and sector-wide participation, suggests that any sustained breakout above resistance could act as a catalyst for fresh buying interest, keeping the near-term outlook positive and constructive.
Nifty Metal: Persistent weakness following rejection at key resistance
In contrast, the Nifty Metal index is displaying clear signs of weakness after encountering strong resistance near the upper boundary of a widening wedge formation. The failure to sustain gains at higher levels, followed by a complete retracement of recent weekly advances, signals a shift in short-term momentum in favour of sellers.
The technical outlook is further weakened by a bearish crossover on the weekly MACD, which indicates that bullish momentum is fading and that the risk of a deeper corrective phase is increasing. Such signals often suggest that any attempt at recovery could face selling pressure unless supported by stronger buying interest.
From a price action standpoint, the index now appears vulnerable to additional downside. Immediate support is seen around the 12,400 level, which, if breached, could lead to further declines towards the next significant support zone near 11,900. A decisive break below these levels may accelerate selling activity and reinforce the bearish trend.
Derivatives data adds another layer of confirmation to the negative outlook. Approximately 70% of both in-the-money (ITM) and out-of-the-money (OTM) call strikes have seen fresh short buildup, indicating that market participants are actively betting on limited upside or further downside. This reflects a cautious to bearish sentiment prevailing across the segment.
Given the current structure, the index is likely to remain under pressure unless it manages to reclaim and sustain above key resistance levels convincingly. Until such a reversal materialises, the prevailing strategy is inclined toward a sell-on-rise approach, with downside risks expected to dominate the near-term trajectory.
First published in Financial Express.
