The trading range also remained similar; against 550.05 points the week preceding this one. This time, Nifty has been hovering within a range of 595.80 points while continuing to stay within a broadly defined consolidation range. While a low high low low formed on the chart, the overall index closed with a net loss of 141.55 points (-0.81%) on a weekly basis.
There are a few technical developments on Nifty that need to be considered. In terms of relative performance, the broader markets have recently outperformed the Nifty front line. However, this is subject to change. The RS range of
Nifty against the broader Nifty500 index is seen markedly changing its trajectory and climbing higher.
More importantly, Nifty rolled inside the improvement quadrant of the RRG when compared to Nifty 500. This could potentially end the relative underperformance of this front-line index; it may also cause Nifty to relatively outperform broader markets.
Volatility hasn’t changed much; IndiaVIX fell 1.15% to 18.68 on a weekly basis.
The week ahead should keep the markets in broad consolidation, but with a neutral to bullish undertone. The 17,500 and 17,650 levels will potentially act as resistance points. Support stands at the 17,150 and 16,900 levels.
The trading range should remain similar to what it was in previous weeks. The weekly RSI is 52.21; it remains neutral and shows no divergence from the price. The weekly MACD remains bearish and below the signal line. On the candles, a bearish harami candle has emerged.
This emerged in a consolidation range and therefore is not of major significance at this stage in the current technical setup.
Pattern analysis shows that the index has been trading within a consolidation range of about 2,000 points wide, but well defined. This range translates to the area between 18,600 and 16,500 levels. Currently, Nifty is trading above all three major moving averages; but below the 20-week MA.
Given the clearly defined consolidation range, there is nothing on the charts at this time that shows major declines in the market as long as the index keeps its head above the 16,400 levels.
Overall, Nifty should have a rough start to the week; however, it is expected to remain largely within a defined consolidation range. Market nervousness should affect all sectors. However, groups such as Oil & Gas, PSU Banks, some Financials, Autos and a few Pharmaceuticals are expected to show resilient performance.
It would be wise to avoid shorts as long as the index is defending key levels. In the event of downward movements, these opportunities can be better used to buy selected stocks. While keeping overall leveraged exposures low, a cautiously positive outlook is advised for the week ahead.
Analysis of the Relative Rotation Charts (RRG) shows that the Auto Index, Commodities, PSE and PSU banking indices are firmly placed inside the main quadrant. The energy index is also inside this quadrant; all of these groups are likely to relatively outperform the broader Nifty500 index.
The IT and real estate indexes are in the weakening quadrant with infrastructure and the Midcap 100 index. Nifty FMCG, consumption and the financial services sector index are in the lagging quadrant. However, all show an improvement in relative momentum against the broader markets. They are still completing their consolidation phase.
The shrewd indices of banks, pharmaceuticals and metals are in the improving quadrant and they could continue to show resilient performance against the broader markets.
Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 index (broader markets) and should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. He can be contacted at firstname.lastname@example.org)