NEW DELHI:The domestic market perfectly respected the technical levels during the week gone by, and the indices took a breather to end with a minor loss. For four days, Nifty piled up incremental gains, but the last session reversed all of those. Nifty oscillated in a narrow 262-point range, but headed nowhere in a meaningful way.
While respective critical levels, the market broadly consolidated. After moving within a defined range, the headline index finally ended with a nominal loss of 35.55 points, or 0.32 per cent for the week.
In our previous weekly note, we had mentioned that Nifty was lacking the strength it requires even as it was piling up incremental gains. The index did finally give up after failing to penetrate the 11,300-11,350 zone. These levels represent a strong pattern resistance in form of a trendline that the index originally broke before starting its downward spiral earlier.
Consistently falling volatility remains a concern, as it signaled rising complacency among market participants. INDIA VIX came off another 4.01 per cent to 21.67. Nifty remains above its key 50- and 100- week moving averages.
India’s market remains one of the relatively resilient ones compared with its global peers. However, the US dollar, which is oversold and is showing a bullish divergence on the lead indicators, may slightly hamper the upside moves of global equites in general and emerging markets, in particular, if it were to stage a technical pullback.
Nifty is likely to face resistance at 11,280 and 11,400 levels on the upside, while supports will come in at 11,065 and 10,900 levels.
The weekly RSI stood at 59.26. It remains neutral and does not show any divergence against price. The weekly MACD remains bullish and trades above the signal line. However, the slope of the histogram showed the incremental momentum has tapered off and the slope is declining slightly. Apart from a black body, no significant formations were observed on the candles.
Pattern analysis showed Nifty is resisting its lower trend line of the channel that it initially broke. It has managed to keep its head above the 50-week and 100-week moving averages at 10,915 and 11,015 levels, respectively. This 11,015-10,915 zone represents an important support area for the index.
All in all, it would be of paramount importance for Nifty to keep its head above the 11,915-11,015 zone in the coming days. This 100-point area represents a strong support, and any breach of these levels will bring in incremental weakness in the market.
We recommend avoiding aggressive bets on either side and staying light on overall exposure. A cautious approach is needed in the coming week, as a technical pullback in the Dollar Index and persistently low level of VIX remain key concerns for the market.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95 per cent of the free float market-cap of all the listed stocks. The review showed lack of dominant position of any sector this week.
Nifty Auto and IT indices were the only groups present in the leading quadrant. Out of the two, Auto is seen giving up slowly on the relative momentum front. Apart from this, Nifty Services, Financial Services, PSU Banks and Bank NIFTY groups are placed in the improving quadrant. They are expected to put up a relatively better show and show resilience to any corrective moves in the market.
They appear to be taking a breather. However, these groups are likely to relatively outperform the broader markets along with the auto and IT packs. Nifty Commodities and Energy indices have drifted in the weakening quadrant. Along with these groups, Nifty Pharma and Nifty Infrastructure are placed in the weakening quadrant. Some isolated stock-specific moves can be expected from these groups.
Nifty PSE index is rotating inside the lagging quadrant. Nifty FMCG and Consumption Indices have also entered the lagging quadrant. These groups may relatively underperform the broader markets.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)