After having faced resistance in resistance area between 11,800 and 11,840 levels for seven weeks, the stock market loosened up a bit in the week gone by and ended with losses. Nifty spent the past couple of weeks in a defined range as it remained indecisive and did not make any convincing directional move. This week, it witnessed increased corrective pressure at higher levels and ended with a net loss of 258 points, or 2.19 per cent on a week-on-week basis.
Nifty has ended below the 20-period MA on the weekly charts. India VIX, the volatility index, currently trades at a multi-month low after having declined
another 8.17 per cent to 12. VIX is trading at one of its lowest points in recent past when the market is near its higher band, which does not paint a pretty picture for the days ahead. There are higher possibilities of Nifty drifting lower and volatility increasing in the near term.
The market may see a stable start to the coming week, but 11,700 and 11,865 levels will act as immediate resistance for Nifty, while supports will come in at 11,440 and 11,300 levels.
The Relative Strength Index (RSI) on the weekly chart stood at 52.5485. It remains neutral and does not show any negative divergence against the price. The weekly MACD has turned bearish following a negative crossover. It now trades below its signal line. A falling window has occurred on the candles. A Falling Star pattern has emerged on the candles as the bottom of the previous shadow is above the top of the current shadow. Such a formation usually results in continuation of a downtrend.
Pattern analysis of the weekly chart reveals Nifty failed to breach the crucial double top resistance formed in the 11,800-11,850 zone. It appears Nifty has formed a congestion zone while making several failed attempts to break above this resistance, and subsequently gave up.
The index currently trades in a secondary channel after it breached its more significant 30-month-long upward rising channel in October, 2018. Nifty is slipping towards its lower support of the rising channel. If this level is breached, then the possibility of Nifty testing its 50-week moving average in the coming days cannot be ruled out.
All upward moves, if there are any, will keep the market in a defined range and will remain vulnerable to selloff at higher levels. Given the current technical setup, we recommend keeping exposure at very modest levels on either side. As the market is oversold on short-term indicators, it may see some technical pullback, but again, these pullbacks may not be sustainable at higher levels. We recommend staying highly stock specific and approaching the market with caution in the coming week.
In our look at the 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.
A review of the relative rotation graphs (RRG) continues to present a mixed picture. Bank Nifty, Financial Services Index, Infrastructure, Services Sector Index, PSE and Realty indices are currently placed in the leading quadrant. Out of these groups, the realty pack has made a U-turn into this quadrant fuelled by stark improvement its relative momentum. The Infrastructure and Services indices and Bank Nifty are seen inching higher, and these groups are expected to relatively outperform the broader market, while PSE and financial services group are likely to take a breather.
Midcap, FMCG and Consumption indices have crawled further into the improving quadrant and may continue to see stock-specific outperformance compared with Nifty500. PSU banks can also show some resilience compared with other sectors.
Apart from this, Energy, IT, Pharma, Media and Auto indices are expected to drift and may steadily give up their relative momentum and underperform the broader market.
Important Note: RRGTM charts show you the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against Nifty500 (broader market) and should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])
Source: Economic Times