Though we had started last week with 80% of Nifty 500 stocks trading above their respective 10-day SMA, Friday’s plunge has ensured that less than 50% of the index constituents are trading above this key benchmark.
The inverted hammer candlestick pattern formed in Nifty due to the resultant profit booking hints at trend reversal, but the close above 24,050 retains upside hopes. Oscillators are less suggestive towards directional play.
Meanwhile, the Foreign Institutional Investor (FII) long-short ratio in the index future segment has risen sharply, thanks to a large spike in longs on Friday. However, the shorts have also risen through the week, restraining us from taking an outright positive based just on the long positions’ spike, especially as June’s expiry is approaching.
Against this backdrop, we examine two sector-specific themes below.
Nifty Auto preparing for a potential breakout
The Nifty Auto index is beginning to display clear early indications of a bullish reversal, driven by a combination of supportive price action and strengthening derivatives data.
Currently, the index is experiencing a notable surge in trading volumes over multiple weeks, while simultaneously attempting to break above a well-established horizontal resistance band. This kind of behaviour often reflects renewed market interest and fresh buying participation emerging at elevated price levels, which can be a precursor to a sustained upward move.
From a derivatives standpoint, market sentiment is undergoing a visible shift. Nearly 90% of auto sector stock futures have witnessed consistent short covering, both during Thursday’s session and on a week-on-week comparison.
This trend highlights that traders who previously held bearish positions are now actively unwinding them, thereby reducing downside pressure while increasing the likelihood of continued upward momentum. Such large-scale short covering typically signals growing confidence among market participants and enhances the probability of an extension in the ongoing rally.
At the stock level, participation has become increasingly broad-based, which is a healthy sign for trend sustainability. Key heavyweights such as Mahindra & Mahindra (M&M), TVS Motor Company, Maruti Suzuki India, and Hero MotoCorp are all contributing positively to the index’s upward bias. This widespread strength across multiple constituents adds depth to the rally and reduces the likelihood of it being driven by isolated stocks.
Looking ahead, a decisive and sustained breakout above the prevailing range could pave the way for higher targets. The index may initially move toward the 27,450 level, and with continued momentum and supportive market conditions, it could subsequently aim for the 27,900 mark.
Nifty Realty breakout supported by strong short covering
The Nifty Realty index is currently demonstrating a well-structured bullish setup following a convincing breakout above a critical horizontal resistance level. This technical move is further reinforced by the presence of multiple bullish reversal candlestick patterns observed on the monthly charts, signalling a broader structural shift in trend from bearish to bullish.
Additionally, the index continues to maintain its position above both the 20-day and 50-day simple moving averages (SMAs), underlining the presence of consistent underlying strength and positive momentum.
In the short term, however, some degree of corrective movement or consolidation cannot be entirely ruled out. The formation of a shooting star candlestick pattern near the 50-week moving average suggests that selling pressure may emerge at higher levels.
Nevertheless, any pullback toward the 820–817 zone should not be viewed negatively; instead, it can be interpreted as a healthy retracement within an overall uptrend. Such declines may provide investors and traders with favourable “buy-on-dips” opportunities as the broader bullish structure remains intact.
From a derivatives perspective, conviction among market participants appears particularly strong. Almost 100% of realty sector stock futures experienced short covering during Thursday’s trading session, while approximately 80% showed similar behaviour on a weekly basis. This widespread unwinding of bearish positions reinforces the bullish outlook and indicates a strong shift in sentiment toward the upside.
Stock-specific trends within the real estate space further strengthen this positive outlook. Leading players such as Godrej Properties, Oberoi Realty, Phoenix Mills, and Prestige Estates Projects are all exhibiting robust technical structures, contributing to the sector’s overall momentum.
If the index manages to sustain levels above 840, it could act as a critical trigger point for further upside movement. In such a scenario, the index may extend its rally toward the 855 level, supported by improving sentiment, technical strength, and continued participation.
First published in Financial Express.