This helped Nifty drag the support levels higher during the week gone by. While trading on the expected lines, the domestic equity market put up a resilient show and ended the week with some modest gains. Despite being overbought, the market showed no signs of correcting in the past five sessions. It consolidated in a narrow range of just 182 points and closed with a gain of 45.65 points, or 0.26%, on a weekly basis.
The market remains overbought on both daily and weekly charts. However, the undercurrents are strong. And it is also important to note that when the market is in strong uptrend, it tends to remain overbought for some time even when it consolidates.
Options data shows heavy Put writing continued throughout the week between 17,200 and 17,400 levels. This makes the 17,000-17,200 zone a strong support area for Nifty if a minor corrective move, or range-bound consolidation, occurs. There are no visible signs of any major correction. However, some rangebound consolidation is very much likely at current levels. Volatility cooled off slightly; India VIX came off 4.13% to 13.94.
Nifty is likely to see a positive start to the coming week, but the 17,480 and 17,595 levels may act as the potential resistance points at higher levels. Supports on the lower side can come in at 17,200 level followed by 17,120. The trading range is expected to remain wider than usual.
The weekly RSI stood at 77.76 level; that is a neutral stance and does not show any divergence against the price. The weekly MACD remains bullish as it is above the Signal Line. A Spinning Top occurred on the candles. This reflects a little price action, and very less difference between the open and the closing levels for the week. This kind of candle also indicates lack of directional bias that prevailed over the last five days.
Pattern analysis of the weekly chart showed the main breakout that occurred when Nifty moved past the 15,900-15,950 zone is still very much in force. After each move on the higher side, the market has consolidated for some time, only to resume the uptrend. As of now, this short-term base has shifted to the 17,000 level, which is expected to act as an immediate support if a corrective more or a range-bound consolidation occurs.
FMCG and the consumption indices have been trading strong. However, some underperformance was still seen in sectors like auto, banks and select pharma names and also the PSE stocks. We expect these sectors to improve their relative performance against the broader market in the coming weeks. We recommend avoiding aggressive shorts and staying very selective while making new purchases. All profits should be protected vigilantly even as the broader primary trend remains intact.
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.
The analysis of Relative Rotation Graphs (RRG) showed the Nifty IT, Realty and the Smallcap indices are inside the leading quadrant; out of these, the Smallcap index is seen slowing its momentum. However, these groups are likely to continue outperforming the broader Nifty500 index on a relative basis.
The Midcap100, Commodities and Metal indices are inside the weakening quadrant. Although the Midcap index looks slightly weak, all the three indices are attempting to consolidate their current relative underperformance.
Nifty Auto and Pharma Indices continue to languish inside the lagging quadrant along with the Media Index. These groups are likely to underperform the broader market. PSU Banks, Bank Nifty, Infrastructure, Energy and the PSE indices are inside the lagging quadrant as well. However, they appear to be consolidating and improving their relative momentum against the broader market.
The Financial Services, Services Sector, Consumption and FMCG indices stay firm inside the improving quadrant. These groups should continue to show resilience against the broader Nifty500 Index.
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.
(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@example.com)