After measured moves, the market displayed both the behaviour, selling at higher levels and short covering at lower levels. Eventually, the index ended the week with a net gain of 133 points, or 1.24 per cent.
Nifty tested two very important levels this week. On the daily charts, it closed slightly above the 200-DMA, which currently stands at 10,869. On the weekly chart, it tested the 50-week MA which is at 10,902. In the coming week, it will be crucial to watch Nifty behaviour against these two levels on a closing basis. Volatility also declined as INDIA VIX retraced another 3.15 per cent to 246.16.
Despite the risk-on setup at play, we reiterate the need to follow the upward momentum in a cautious manner.
Nifty is expected to face resistance at the 10,960 and 11,065 levels in the coming week, while supports will come in lower at 10,810 and 10,635. Any corrective move will make the trading range wider over the coming days.
The weekly RSI stands at 57.15. It has marked a fresh 14-period high, which is a bullish signal. The RSI remains ‘neutral’ as it does not show any divergence against price over the 14-day period.
However, the indicator remains within a range and is seeing a broad pattern formation. The weekly MACD is bullish, as it trades above the signal line.
A ‘Hanging Man’ pattern occurred on the candles. This formation stays important, as it has appeared at the 50-week moving average and just below the resistance point at the 100-week moving average. Even with the liquidity-driven push on the upside, this formation certainly calls for caution at current levels.
Pattern analysis shows Nifty, while continuing its pullback from the lows seen in March, has not only penetrated the decade-old trend line, but it has also moved past the 200-week moving average, which remains its near-term support. On the upper side, it has just closed at the 50-week moving average, which is at 10,902 and just below the 100-week moving average, which is at 11,032.
Over the coming week, the price action of Nifty against the 10,850-10,900 zone will be crucial. If the Nifty is able to keep its head above this zone, then we may see some extension of the rally towards the 100-week moving average.
However, at all point in time, Nifty will continue to stay vulnerable to sharp, but rangebound consolidation at current levels, and this may also include some measured corrective moves in the market.
As a trader, one has to keep following the trend, but in the current technical setup, we not only recommend treading the road ahead cautiously, but also vigilantly with trailing stops. Also, protect profit at higher levels.
In our look at the Relative Rotation Graphs®, we compared various sectors against the CNX500 (Nifty500 index), which represents over 95 per cent of the free-float market-cap of all the stocks listed.
The review of Relative Rotation Graphs (RRG) shows the markets completely divided in terms of leadership which is seen shifting from one group of sectors to the other.
Financials – including Bank Nifty, PSU Banks, Private Banks – Realty, Financial Services, Metals and Media baskets are all placed in the improving quadrant.
These groups are seen sharply improving on their relative momentum, which indicates likely resilient performance from these sectors in the coming days. Out of these, the financial services group has just crawled inside the improving quadrant, indicating its likely bottoming out. Along with this, the Auto index is the only index, which is placed comfortably in the leading quadrant, indicating a cumulative relative outperformance from these groups.
The Commodities Index, Energy and Infrastructure indices are also in the leading quadrant. However, they are seen sharply giving up on their relative momentum. This means that there might be some sporadic outperformance from these groups, but overall, they may be giving up on their leadership. IT, Pharma, FMCG and Consumption indices are seen advancing southward in the weakening quadrant. The PSE Index has made a negative rotation to the lagging quadrant from the improving one. These groups will relatively underperform the broader Nifty500 index collectively in the coming days.
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)