As discussed in our earlier technical note, the Indian equity market has become grossly overbought, which is why it is largely expected to consolidate. However, in the first four days of the week gone by, Nifty put up a very strong show, as it kept on marking incremental lifetime highs on a closing basis.
The last trading session also had a buoyant first half; but the second half saw some serious paring of gains. Nifty traded in a much wider 523-point range. Despite coming off its high, it still managed to end with a net gain of 215 points, or 1.24 per cent, on a weekly basis.
Just like the week before this one, Nifty continues to remain in the overbought zone. The primary uptrend and the breakout that occurred above the 15,900-15,950 levels remain very much intact. The only possibility is that Nifty has marked an intermediate top by taking a breather; and the 17,792 level has now become a very important point of resistance. Friday’s action created a wide trading range for Nifty between 17,400 on the lower side and 17,790 on the higher side.
There are chances that the market may stay in this broad consolidation range for some time. Nifty PCR across all expiries remains healthy, and are not overbought. The coming week may see the 17,680 and 17,790 levels put up strong resistance, while support may come in at 17,480 and 17,355 levels. The trading range is likely to stay wider than usual in the coming days.
Volatility has increased; India VIX surged 9.25% to 15.2300.
The weekly RSI stood at 79.21; it continues to remain in the overbought territory. However, the RSI is neutral, and does not show any divergence against the price. The daily MACD looked bullish and stayed above the Signal Line. A white body emerged on the candles. Apart from this, no other formations were noticed on the charts.
Pattern analysis showed the breakout that occurred after Nifty crossed above the 15,900-15,950 range is very much intact. While continuing to be in a steep uptrend, Nifty has just ended near the upper Bollinger band.
In the coming week, the Index may continue to track the upper band. It also appears to have created a broad consolidation range, with the 17,350-17,400 zone acting as a lower support. In the coming days, it is expected that Bank Nifty, which was lagging in its relative performance against Nifty, will continue to remain resilient and relatively outperform the broader market.
Apart from this, other consolidating sectors like PSE, Auto, and Realty Indices may also show resilient performance. Aggressive positions should be avoided at this stage and new purchases should be done on select counters and kept in modest quantities. A cautious approach is advised for the coming week.
In our look at Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95% of the free-float market-cap of all the listed stocks.
An analysis of the Relative Rotation Graphs (RRG) showed the IT, Smallcap and Realty Indices are inside the leading quadrant. They may continue to outperform the broader market relatively.
The Commodities, Metals and Midcap Indices are inside the weakening quadrant. Apart from a few sporadic stock-specific shows, these sectors may not perform much on an individual basis.
Bank Nifty has rolled inside the improving quadrant; this indicates a likely end to its relative underperformance against the broader market till date. We may see this sector put up a resilient show in the coming days and may relatively outperform the broader market.
Nifty Pharma continues to languish inside the lagging quadrant and it may underperform in the coming days. Apart from this, Media, PSU Banks, Nifty PSE, Auto and the Energy Indices are also inside the lagging quadrant. However, all these groups are seen consolidating and appear to be improving on their relative momentum.
The Infrastructure Index has also rolled inside the improving quadrant as are the FMCG, Consumption, Services Sector and Financial Services Indices.
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 market) and should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected])