Encouraging Setup: Broader Market Yet to Join the Move
From sideways action to signs of strength. All eyes now on earnings quality and broader participation.
Indian equity markets showcased a clear large-cap dominated rally this week, with Sensex leading the charge at +1.76% gain followed by Nifty50 at +1.68%, while mid and small-cap segments significantly underperformed. The Nifty500 gained 1.12%, reflecting the mixed performance across market capitalizations, with Nifty Midcap150 managing only 0.18% gains, Nifty Smallcap250 declining 0.21%, and Nifty Midsmallcap400 remaining virtually flat at 0.04%.
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Key Drivers This Week
Large-cap Concentration: Banking stocks drove benchmark gains while mid/small caps lagged. In fact, benchmark indices Nifty50 and Sensex hit their 52-week highs, and are just few percentages away from their all-time highs.
Mid and small-cap stocks faced selling pressure, while large caps outperformed. Large-cap stocks showed higher relative strength compared to mid-cap and small-cap stocks.
Technical Perspective
Nifty500 Trend: Nifty500 gained approximately 1.12% this week, marking its third consecutive week of gains. While this positive streak is encouraging and suggests improving underlying strength, the index continues to trade within a consolidation range.
The current sideways pattern, however, is taking on an increasingly constructive tone with higher highs & higher lows being established, indicating that the underlying technical structure is building a solid foundation for potential upward movement.
As mentioned in the previous week’s newsletter, on weekly timeframe, the Nifty500 index seems to be forming the handle portion of a Cup-and-Handle pattern, with volatility tightening, which is a sign of pressure building up before a breakout. When this handle resolves, it could be explosive. This setup often precedes a strong breakout, and if that materializes, it could set the tone for a highly rewarding 2026.
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.
Nifty500’s 10EMA crossed above its 20EMA last week triggering a ‘Stay’ signal that suggests holding onto existing long positions.
Market Breadth: The % of stocks above all key short-term moving averages remained flat this week. It’s important to note that overbought or oversold signals are most relevant for swing traders, as they reflect short-term momentum shifts.
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Summary
The market is showing signs of emerging from its sideways phase, with encouraging momentum building. The larger picture looks increasingly promising as we build a solid foundation for a better 2026. Nifty500 is still working through its developing cup and handle pattern. Going forward to next week, closely monitoring earnings quality will be essential. A broader market participation and sustained earnings quality across all market caps is yet to be seen. The overall trajectory appears more constructive than previous weeks.