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Dalal Street week ahead: No downside seen for Nifty; sectoral rotation ahead

The domestic market traded very much on the analyzed lines during the week gone by. It was expected that the 50-pack will extend its upward move, but will do so with intermittent consolidation and minor bouts of correction.

While trading exactly in this manner, the Nifty ended the week with net gains of 68.70 points, or 0.60 per cent, on a week-to-week basis.

The coming week will be a truncated one, with August 15 being a holiday on account of Independence Day. We expect a tepid start to the week and do not expect the market to make any meaningful headway on the upside.

Though we may not see any major downsides, the Nifty will continue to face consolidation at higher levels and will remain vulnerable to bouts of profit taking at higher levels.

The 11,480 and 11,595 levels will play out as immediate resistance for Nifty in the coming week, while supports will come in at 11,330 and 11,200 levels.
The weekly RSI stood at 72.7781. Though it trades mildly overbought, the weekly RSI has marked a fresh 14-period high, which is a bullish signal. No divergence of any kind was seen against the price. The weekly MACD stays bullish as it continues to trade above its signal line.

Pattern analysis on the weekly chart now confirms the breakout that occurred above the 10,750-10,800 area happens to be the temporary lower top for the markets.

Post this breakout, Nifty now continues to remain firmly in the 30-month old upward rising channel. Overall, the index continues to depict a buoyant setup on the weekly charts and remains in an upper rising channel. It is moving towards the upper range on this channel, but on the immediate short-term basis, it remains mildly overbought and over-extended on the charts.

We expect significant sectoral rotation to take place and certain lagging sectors to take charge in the coming weeks. Overall, while remaining highly stock-specific and chasing momentum very carefully, a cautious view is advised for the coming week.

A study of Relative Rotation Graphs shows consistent improvement in the broader indices like CNX500, CNX200, CNX100 and Midcap universe.

This is the primary reason why no major downsides are seen in the broader market. PSU Banks remain in the improving Quadrant along with pharma and energy, which show relatively sharper improvement in the momentum as compared to the PSU banks. We expect good performance from pharma and energy packs and they are likely to be accompanied with stock specific performances from midcap, NiftyNext50 and the metals pack.

Media and infrastructure may see sporadic outperformance but may not see any meaningful moves. CNX Services, FMCG and IT are seen very gradually losing momentum and are expected to put up only stock specific isolated relative outperformance against 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 as against the Nifty Index 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