In the coming week, although, there are chances of a technical pullback. The next week is a very truncated one, with practically just three trading days. Thursday will just have a symbolic one-hour Mahurat Trading session while Friday will be a trading holiday on account of Diwali-Balipratipada.
Nifty50 tested the important 50-DMA level on the daily chart, which presently stays at 17,565. The options data also shows 17,500 holding maximum Put OI. However, on the higher side, 18,000 has maximum Call OI concentration followed by 17,800 levels.
Volatility remained largely unchanged. India VIX fell just 0.68 per cent to 17.42 on a weekly note. The coming week is likely to see the levels of 17,800 and 17,890 acting as resistance levels. The supports come in at 17,550 and 17,500.
The weekly RSI stands at 65.62. It has slipped below 70 from the overbought area, which is bearish. However, it stays neutral and does not show any divergence against the price. The weekly MACD remains bullish and above the Signal line.
Meanwhile, on the candle chart, a large black candle has emerged. This shows the directional consensus of the market participants that prevailed through the week.
The Nifty has come off nearly 1,000-points from its lifetime high. However, even on declining days, few pockets of the market, including the broader markets, continued to show great resilience.
Now, the markets are due for some technical pullback for two reasons. Firstly, it has seen a near-vertical corrective move of 1,000 points from the levels of 18,600. Secondly, Friday’s session saw a large number of shorts being added to the system. Nifty November futures have added over 3.31 lakh shares or 3.18 per cent in net Open Interest. Amid this backdrop, stay light on leveraged exposures, avoid shorts and use downsides, if any, to make modest purchases.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95 per cent of the free-float market cap of all the stocks listed.
The analysis of Relative Rotation Graphs (RRG) showed a possible end to the outperformance of the IT index over the coming weeks as it has slipped inside the weakening quadrant. Nifty Midcap index, which is also inside the weakening quadrant, could continue to sharply improve its relative momentum against the broader markets. It could move towards the leading quadrant.
The Energy, Media, Realty, Consumption, Services Sector, and Infrastructure indices are inside the leading quadrant. The PSE Index has also rolled inside the leading quadrant. All these groups may relatively outperform the broader markets.
Both Nifty Metal and Pharma Index, which are inside the lagging quadrant, could try to consolidate and improve their relative momentum along with Nifty Commodities. The Auto, Financial Services, Bank Nifty, and the PSU Bank indices are inside the improving quadrant. These groups, too, are likely to put up a resilient show against the broader markets.
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)