2026#31: The Setup Is Turning Bullish
Short-term participation has strengthened, while the Nifty 500 tests an important decision zone.
Weekly Market Update: Week Ended July 31st, 2026
Indian equities recovered strongly during the week, supported by renewed foreign buying, strengthening of the rupee and positive reactions to select earnings, even though global sentiment remained mixed.
All major indices gained over 2%, with Sensex (+2.7%) and Nifty 50 (+2.6%) leading, while Midcap and smallcap indices lagged relatively.
The recovery appears to have been driven by strengthening of the rupee against the dollar, aided by a rebound in IT stocks.
The ongoing Q1 earnings season’s strong results helping sustain buying interest in stock specific pockets.
A decline in crude coupled with improving breadth and renewed FII participation would strengthen the case for the recovery to extend. Any reversal in these factors could quickly bring volatility back.
Technical Perspective: Nifty500
Daily chart: The index had a strong recovery this week, reclaiming the 50EMA and pushing back towards the recent swing-high zone. However, a clean breakout with follow-through would be important before assuming the next leg higher.
Weekly chart: The larger trend is constructive but still in a consolidation / recovery phase. The structure is indicating that the index is attempting to break out of the previous swing-high. Importantly, the recent Weekly HH is close to the previous major high, making this a key decision zone.
Given this week’s broad-based rally, the immediate question is whether buying sustains at higher levels. A decisive breakout above the recent daily/weekly resistance, accompanied by improving breadth and participation from mid and small caps, would strengthen the case for a fresh up-leg. Conversely, rejection here followed by a break below the 50EMA would suggest that this week’s move was more of a relief rally than a confirmed trend reversal.
What next?
The index is at an important inflection point where price confirmation + breadth expansion could provide the next directional clue.
Bias remains cautiously bullish, but confirmation is still required.
The reason we track Nifty500 is because it represents over 90% of the free float market capitalization, making it a comprehensive barometer of market health.
Market Breadth
Nifty500 continues to retain its ‘Stay’ signal, with its 10EMA remaining above the 20EMA following the bullish crossover on June 16.
Breadth has improved, but the recovery is still not broad-based:
10EMA: 47% of stocks are now trading above their 10EMA, an increase from 31% last week. This sharp rise shows that short-term momentum strengthened significantly during the week.
30EMA: 47% of stocks are above their 30EMA, compared to 42% indicating gradual improvement and that we are in the early stages of a broader recovery.
50EMA: At 53%, stocks above the 50EMA are only marginally above the 50% threshold, suggesting that medium-term participation is positive but lacks conviction.
Overall: The market is currently exhibiting a bullish tilt as it transitions from the thinning participation observed last week to a state of improving breadth. However, it has not yet reached the level of participation that would confirm a strong, broad-based uptrend. The next few sessions should ideally see the percentage of stocks above the 10EMA and 30EMA move decisively above 50%.
Trading & Investment Strategy
Swing & Positional Traders
Prioritize relative strength: Prefer breakouts from tight consolidations, pocket pivots and orderly pullbacks to the 10/20EMA. Avoid chasing extended stocks.
Be prepared to get aggressive and increase exposure if breadth expands decisively - particularly if stocks above the 10EMA and 30EMA move above 50% and the Nifty500 clears its recent resistance with follow-through.
Continue holding existing quality winners and build positions on strength and pullbacks, particularly in sectors and stocks demonstrating superior relative strength and positive reaction to results.
Risk Management
Use a tighter risk-management framework. While it may be time to start getting aggressive, the current breadth does not justify giving weak trades excessive room. If a breakout fails or a stock loses its breakout level/short-term moving average, exit quickly.
Summary
Traders can begin turning more aggressive, but selectively - favour relative-strength leaders, tight consolidations and positive earnings reactions, while maintaining strict exits if breakouts fail or the index slips back below the 50EMA.
The next confirmation would be a breakout above the recent daily and weekly resistance zone, supported by stocks above the 10EMA and 30EMA moving sustainably beyond 50%. That would strengthen the case for increasing exposure and a fresh market up-leg.