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Dalal Street Week Ahead: Nifty’s next stop at 12,300; PSU banks,metals, pharma stocks looking strong

We have just two trading days left in this calendar year, with the coming week ushering us into 2020. The benchmark indices look on course to end the year near their lifetime highs, but they are also leaving us at a critical juncture from a technical point of view.

The indices spent the week gone by consolidating near their high points. Though it spent a major part of the week in the corrective mode, a strong technical rebound was seen on the last trading day of the week, and it saw Nifty recoup all its losses.

Given the holiday season, volumes continued to remain low. The headline Nifty50 ended the week with a minor loss of 26 points, or 0.21 per cent.

After breaking above the 12,103 mark, Nifty suffered a full throwback, which took it near the 12,103 level again during the week. However, it saw a strong technical rebound on the last trading day. The critical thing to note here is that Nifty has not moved past its previous week’s high, which remains at its lifetime high point of 12,293. Further, the Indian Volatility Index, INDIA VIX, has plunged a further 14.60 per cent to 10.52, which remains the multi-year low level for the index. Such low levels of volatility reflect complacency among market participants and it cannot be taken lightly.

Since Nifty has ended near the high point, we may see modest positive moves in the initial hours of trade on Monday. The 12,300 level would remain a significant point of resistance, followed by 12,375, while supports will come in much lower at 12,100 and 11,965.

The Relative Strength Index (RSI) on the weekly chart stood at 65.56. It remains neutral and does not show any divergence against the price. The weekly MACD remains bullish and trades below the signal line. A Spinning Top emerged on the candles. The Spinning Top results out of a small real body with very little difference between the open and closing prices.

The formation of such a candle reflects lack of consensus and may potentially disrupt the momentum at higher levels. Pattern analysis of the weekly charts showed Nifty has attempted a breakout, and this attempt will await confirmation over the coming weeks. As long as Nifty keeps its head above 12,100 level, this breakout will remain in force.

The outlook for the coming week remains much on similar lines like last week’s. In the event of any continued up-move, we may continue to follow the trend and chase the momentum. That said, while chasing the uptrend, it should be kept in mind that both weekly and the longer-term monthly charts continue to signal a likely disruption in trend and loss of momentum at higher levels. We recommend following the trend with utmost caution and also reiterate the need for vigilant protection of profits at higher levels.

In our look at Relative Rotation Graphs, we compared various sectoral indices against CNX500 (NIFTY 500 Index), which represents over 95% of the free-float market-cap of all the listed stocks.

Graph

Graph

The review of Relative Rotation Graphs (RRG) showed a steady rotation has continued in the financial space over the previous week. Bank Nifty and the Financial Services pack have continued their advance while maintaining their relative momentum and staying in the leading quadrant. On the other hand, the PSU Banks, which are cuttently placed in the improving quadrant, is also seen building on its momentum and maintaining its relative out-performance.

Along with the financial space, we also have Metals, Pharma and Media groups steadily heading north and maintaining their momentum. All these groups are likely to relatively outperform the broader markets over the coming week. The Realty Index has also advanced in the leading quadrant.

The IT pack is attempting to consolidate its under-performance, and has been trying to stabilise. However, it still remains in the lagging quadrant and has not completed its bottoming out process. The Energy, CPSE, Commodities, FMCG and Consumption packs are steadily giving up on their relative momentum and may collectively under-perform the broader market.

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.

Source: Economic Times