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| Nifty 50 |
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| Nifty Midcap 100 |
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| Nifty Next 50 |
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| Nifty Smallcap 100 |
The charts above represent the daily chart of Nifty 50, Nifty Next 50, Nifty Midcap 100, and Nifty Smallcap 100 indices (Chart source: Tradingview). Indian markets have been in a robust up trend over the past couple of years, moving in tandem with global peers.
Over the past couple of weeks however, divergence has started to emerge among these indices. It can be observed among the charts that the new high in Nifty 50 has not been accompanied by a corresponding new high in any of Nifty Next 50, Nifty Midcap 100, or Nifty Smallcap 100 indices. This suggests that broader markets have not participated in the most recent up move and the rally is just being driven by a few heavyweight stocks.
Over the past couple of weeks however, divergence has started to emerge among these indices. It can be observed among the charts that the new high in Nifty 50 has not been accompanied by a corresponding new high in any of Nifty Next 50, Nifty Midcap 100, or Nifty Smallcap 100 indices. This suggests that broader markets have not participated in the most recent up move and the rally is just being driven by a few heavyweight stocks.
Two interpretations can be made out of this. The first being that the broader indices will get back in sync with Nifty 50 and advance to fresh highs. The second being that the recent up leg in Nifty 50 will run out of steam and that it will join the broader indices lower. Given that the recent up move has been accompanied by fewer stocks advancing than those declining, noting how overstretched the Nifty 50 momentum indicators across all time frames are, and also witnessing the spike in India's Volatility Index (VIX) over the past few sessions, the second interpretation rather than the first looks more likely to unfold in the days ahead.
While the secular up trend in Nifty 50 remains intact, a short-term breather looks more likely. Not only would a short-term correction relieve the markets off overbought conditions but it would also give fresh buying opportunity to participate in the next up leg. I expect the current up leg in Nifty 50 (the one which began from 10033 late last year) to not sustain beyond 11300-11400 zone, which marks the 161.8% fibonacci extension of up move from 6825 to 8968 projected from 7893 as well as the 200% fibonacci retracement of down move from 9119 to 6825. As far as correction is concerned, a 5-9% decline cannot be ruled this year, before any eventual move past the 12000 mark.
Meanwhile, Nifty Next 50 is forming a bearish Head and Shoulder (H&S) pattern with neckline seen around 30700, while Nifty Smallcap 100 will form a lower high-low sequence in case it breaks below 9124. It will be worthy to keep an eye on these levels as a break below these would damage the short-term picture among the broader markets and potentially trigger a short-term correction. Nifty Midcap 100 has also formed a lower peak, but the interim bottom is a little far away as compared to those in Nifty Next 50 and Smallcap 100 indices.
As such, while the larger picture of Indian markets remains very bullish, caution is warranted in the short-term given the increasing divergence among market internals.
While the secular up trend in Nifty 50 remains intact, a short-term breather looks more likely. Not only would a short-term correction relieve the markets off overbought conditions but it would also give fresh buying opportunity to participate in the next up leg. I expect the current up leg in Nifty 50 (the one which began from 10033 late last year) to not sustain beyond 11300-11400 zone, which marks the 161.8% fibonacci extension of up move from 6825 to 8968 projected from 7893 as well as the 200% fibonacci retracement of down move from 9119 to 6825. As far as correction is concerned, a 5-9% decline cannot be ruled this year, before any eventual move past the 12000 mark.
Meanwhile, Nifty Next 50 is forming a bearish Head and Shoulder (H&S) pattern with neckline seen around 30700, while Nifty Smallcap 100 will form a lower high-low sequence in case it breaks below 9124. It will be worthy to keep an eye on these levels as a break below these would damage the short-term picture among the broader markets and potentially trigger a short-term correction. Nifty Midcap 100 has also formed a lower peak, but the interim bottom is a little far away as compared to those in Nifty Next 50 and Smallcap 100 indices.
As such, while the larger picture of Indian markets remains very bullish, caution is warranted in the short-term given the increasing divergence among market internals.
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