The week gone by brought some respite from the severe selloff seen in equity markets over the past many days. In the week before this, Nifty saw its worst ever lost in the recent past, shedding some 5.62 per cent.
However, last week was relatively kinder, and Nifty saw a minor pullback. The benchmark index ended the week, gaining 156 points or 1.51 per cent on a weekly basis.
But there are several factors that will affect the market in the coming week, which will be a truncated one as Thursday will be a holiday on account of Dussehra. In the week gone by, the Vix (Volatility Index) rose to levels that were seen in early 2016. It then cooled off a bit, bringing respite to the market.
While we step into a new week, global macro-economic factors such as US bond yields, movement in the Dollar Index and Brent Crude prices will continue to cast a shadow on domestic equities. If one were to take a very short-term view, the pullback is likely to continue in the coming week with intermittent hiccups.
In the coming week, the 10,590 and 10,700 levels are likely to playing out as immediate resistance area for Nifty, while supports should come in at 10,400 and 10,210. The weekly RSI stands at 39.3047 and it remains neutral showing no divergence against price. The weekly MACD remains bearish even as it trades below its signal line. A white-body occurred on the candles. In the current context, this does not result in any significant formation.
Overall, while taking an extremely short-term look, the Nifty has still got some room to continue the pullback. The 10,380 and 10,400 levels will be critical to watch out for, as Nifty will have to sustain above these levels to continue with the pullback.
In case Nifty slips below these levels, we might see it struggle to move up. In the event of a continued pullback, there will enough room for Nifty to pull itself back up to 10,700 mark. The 10,700-10,770 zone represents a formidable resistance on both daily and weekly charts.
A cautious view is advised and one should stay away from shorts. All volatile phases should be used to make select purchases in the resilient sectors.
In a study of the Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent the free float market capitalisation of all the listed stocks.
In the coming week, we expect a couple of sectors to show resilience and an improvement in the relative momentum. Infrastructure and the PSE pack should continue to strengthen and likely to show resilience in the event of any weakness. One can also expect the metals pack to show some strength and attempt to outperform the market. The energy and pharma packs remain in the leading quadrants and are set to continue their outperformance over the general market. They should offer a shelter in the turbulent times. Some stock-specific outperformance can be expected from the auto pack and select banks.
Apart from this, no major outperformance is likely from any other pocket. The IT pack is likely to consolidate.
Important Note: RRGTM charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY Index and should not be used directly as buy or sell signals.
Source: Economic Times