Nifty closed above 25,000 last week for the first time since October 2024, raising hopes that the record peak hit in September last year is achievable. The decline in VIX on Friday, despite the struggle to stay above 25,000 is also indicative that traders are getting comfortable with the lofty levels when compared to early April, when we were about 15% below. Let us see how sustainable the uptrend will be?

Last week, we pointed out that SMIDs are staging a strong bounce back, with 61% of midcaps bouncing at least 2% from their respective lows. Risk on mode has persisted since the start of April and the Smallcap Index is no longer showing earlier signs of hesitation. Only 14% constituents of the Smallcap 250 Index are exhibiting RSI of 70 or above, suggesting overbought conditions. 40% of smallcap stocks have an RSI below 60. These point to potential for more upsides. 

Also, only 22% of the small caps have risen above their September peaks, echoing a similar sentiment. Further, less than 30% stocks are above 2 standard deviations from 20-day SMA, suggesting that markets are not in any extreme situation yet, which augurs well for a more broad-based strength in the smallcap space.

Since the last week of April, the Index has made several attempts to break above the 26,480 level and is now hovering close to this key resistance. The daily SMIO has crossed above the zero line, and the formation of a bullish Marubozu candle on the weekly chart suggests that a breakout toward 27,430 could be imminent. We expect most banking heavyweights—excluding SBI, the Bajaj twins, Cholamandalam Finance, Shriram Finance, PFC, and REC —are likely to show strength in the coming week.

The index has been trending upward since March, and following a month-long consolidation, it has now registered a weekly breakout marked by a strong bullish Marubozu candle. It is also approaching a breakout above the weekly Supertrend level, signalling the potential for continued bullish momentum. Stocks such as Reliance, ONGC, Power Grid, Adani Power, Adani Green, BPCL, and Tata Power appear well-positioned for further upside in the coming weeks.

The quick ascent in the last five trading sessions has raised concerns about sustainability, but the starting surmise is that such moves are characteristics of trending markets. Additionally, majority of stocks are passing through the three-candle bullish continuation pattern, or about to break out from a multi-week consolidation pattern. 

This has encouraged us to elevate the prospects of the ongoing uptrend becoming broader-based and sustainable. Further, Nifty is still 4.6% below the record peak hit in September 2024, while 42% of its constituents are at least 10% below their respective September peaks. Also, only 14% of the constituents are above the upper Bollinger band, suggesting that we could have more leaders stepping in and helping Nifty continue the ascent. 

Also, the Nifty is only 2.5% away from the 20-day SMA, pointing to more room for upside before exhaustion sets in. That said, we now have only the October peak at 25,235 ahead, which is in close vicinity. This warns us to be guarded against sudden withdrawal in risk appetite and buying interest as we push ahead. With this in the backdrop, we will begin the week on a positive note, but with a downside marker placed in the 24,7870/24,807 region.

The author is Anand James, Chief Market Strategist at Geojit Investments.