Dalal Street: Dalal Street Week Ahead: The market will remain very equity-specific

In previous technical commentary and forecasts, it was predicted that this week could see some consolidation from a distance. It was also expected that such consolidation could have varied movements and some bouts of profit taking from the higher levels.

However, the disadvantages were to remain limited. While dancing to exactly those tunes, markets have spent the week consolidating within a defined range with limited downside. All sessions either saw markets open lower and then recover from lower levels, or markets witnessed general profit taking only to be bought again at lower levels.

Given the consolidation behavior of the markets, the trading range also remained narrower; Nifty hovered at just 335.90 points during the week. The overall index finally ended with a net gain of 239.25 points (+1.39%) on a weekly basis.

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From a technical point of view, there are a couple of things to consider. On one hand, the Nifty opened above the 50-week MA which stands at 17105 and remained above for the entire week. Now, the Nifty is primarily its major moving averages.

On the other hand, on the charts of the lower timeframes, the Nifty has created a potential top at 17500 levels. This level is likely to act as resistance unless completely removed. Until that happens, we can expect some profit taking from the higher levels. In the same breath, one should also keep in mind that even if the markets remain prone to consolidation, they can stay in a range with limited declines.

In the week ahead, Nifty’s price action against the 17500 levels will be crucial to watch.

Volatility soared; INDIA VIX jumped 14.29% to 18.92 on a weekly note. The coming week will likely see the 17500 and 17625 levels act as potential resistance points. Support should be seen at the 17300 and 17180 levels. The weekly RSI is at 57.62; he went on to score a new 14-period high. However, the RSI is neutral and does not show any divergence from the price. The weekly MACD is bullish and remains above its signal line. Other than a white body that emerged on the Candles, no other significant formations were seen on the charts.

The week ahead is a truncated week for the markets. Tuesday is a commercial holiday because of Moharram. It is very likely that we see further range bound consolidation with the 17500-17600 area acting as rigid resistance. Unless the 17,500-17,600 levels are removed entirely, it is highly recommended to use all upside moves to protect profits at higher levels.

It is also unlikely that we will see any particular sector dominating the market landscape. Future sessions will likely remain very stock-specific in terms of performance. A cautiously positive approach is advised for the week.

In our analysis of the Relative Rotation Graphs®, we compared various sectors to the CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all listed stocks.

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Analysis of relative rotation charts (RRG) shows that while Nifty FMCG, Consumption, Auto, Financial Services and Bank Nifty are in the lead, they are all giving up relative momentum against the broader NIFTY500 index.

This shows that these groups may see themselves as taking a break from the large movements seen in the recent past. Nifty Infrastructure and Nifty Energy continue to remain in the weakened quadrant. The Nifty PSE index rolled inside the lagging quadrant.

It is likely to see relative underperformance against broader markets. On the other hand, the Nifty Commodities, Media and Metal indices are inside the lagging quadrant; however, they are seen improving their relative momentum against the broader markets.

The Nifty IT Index rolled inside the lagging quadrant. This indicates that the phase of relative underperformance may be over for this sector. We will see this group perform better over the next few days. The Nifty Realty and Services indices also remain in the improving quadrant.

Important note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 index (broader markets) 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 in Vadodara. He can be contacted at milan.vaishnav@equityresearch.asia

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