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Dalal Street week ahead: Nifty50’s run may halt earlier than you think

The market witnessed a painful start to the week gone by but recouped bulk of the damage in the last two trading days of the week. Despite this recovery, the benchmark Nifty50 ended the week losing 73.90 points, or 0.54 per cent, on a weekly basis. The 11,760 level remained the immediate top for Nifty, and it was not taken out, as expected.

We again go into a truncated week, as Thursday will be a trading holiday on account of Muharram. As we had mentioned in our previous weekly note, this week as well, we do not expect the Nifty to get past the high of 11,760 too soon.

Even on the weekly chart, Nifty has run up a little ahead of the curve and we may see mean reversion on the higher timeframe charts.

We expect the 11,610 and 11,760 levels to act as immediate resistance for Nifty, while supports will come in at 11,320 and 11,250. The range is expected to remain a little wider given the situation that the market may take some breather after the recent upward move.

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The weekly RSI stood at 68.7014 and it has just moved down from a top formation, and this is a bearish signal. It remains neutral to price, showing no divergence. The weekly MACD remains bullish as it trades above the signal line, but it is seen flattening of its trajectory.

On the candles, a Hanging Man pattern has occurred. This is exactly opposite of a Hammer and usually occurs after a rally. This was seen on the weekly chart of Nifty and this may again increase the possibility that the 11,760 level will continue to act as an intermediate top for the market.

Overall, we have seen strong upward moves in the last two sessions of the previous week. This is still not the time to get carried away with it. In a broader sense, we see the possibilities of the corrective trend continuing in the market. The upward moves have been more because of short covering and it would be important to see that this gets replaced by fresh purchases.

We do not see any major downsides for Nifty, but it is likely to remain in a broad trading range. We recommend a highly stock-specific positioning and effective sector rotation as chasing the sectors that led the previous rally may not help.

A cautiously positive outlook is advised for the coming week.

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In a study of the Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent the free float market-cap of all the stocks listed.

In the coming week, energy stocks are likely to distinctly outperform the broader market on a relative basis. Pharma and PSU banks, too, remain in the leading quadrant; they are somewhat sideways but might continue to outperform relatively. A distinct improvement in momentum was also seen in metals, infrastructure and midcap stocks. Though they may not outrightly outperform the broader market on relative basis, their performance is certainly likely to improve over the coming days.

Consumption stocks, the FMCG pack, media, auto and Bank Nifty may continue to lose momentum and no stand-out performance is expected from these packs apart from sporadic stock-specific movements. Nifty Junior (NIFTY Next 50) too improved its relative momentum and is now in the improving quadrant. CNX100 and CNX200 along with the financial services pack continued to weaken when benchmarked against the CNX500.

Important Note: The RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against Nifty, and it should not be used directly as buy or sell signals.

Source: Economic Times