Nifty traded exactly on those lines and managed to form a new lifetime high. The market had a strong upward directional bias throughout the week and ended with a net gain of 618 points, or 3.70 per cent, on a weekly basis. The market is now highly overbought, and so is Nifty and other key indices, excluding Bank Nifty.
However, options data depicts a stronger picture despite the market being in the overbought territory. The quantum of Put writing being done in each incremental rise shows that supports are being dragged higher and that reflects the confidence in the market’s rise. There are higher chances that the current bounce may have some more room on the upside. However, the overall structure suggests one needs to be cautious and keep strict trailing stop losses to avoid getting stuck in the event of any rangebound consolidation at higher levels.
Volatility has increased along with the index level. India VIX edged up 8.49 per cent to 14.5400. Nifty will face stiff resistance at 17,500 followed by 17,625 level in the coming week, while supports will come in at 17,200 and 17,050 levels. Either way, regardless of the trend, the market’s trading range is likely to stay wider than usual.
The weekly RSI stood at 77.45. It has marked a new 14-period high, which is a bullish indication. The RSI is overbought, but remains neutral and does not show any divergence against the price. The daily MACD remains bullish and stays above the Signal Line.
A large White Body has emerged on the candles. This shows a strong directional consensus on the upside that prevailed during the week. Nifty has ended above the upper Bollinger Band. Some temporary pullbacks inside this band may occur, but broadly, there are higher chances that the current trend will persist for some more time.
Pattern analysis of the weekly charts showed the 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 its uptrend.
All in all, we expect Bank Nifty and PSU Bank Index to continue their relative underperformance against the broader market. Such a behaviour was also observed in some of the FMCG and consumption stocks, despite their indices showing a strong performance. In the coming week, it may make sense to stay with the stocks that have relatively underperformed until now and are showing improvement in their relative strength against the broader market. A selective and stock-specific approach is advised for the week ahead.
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) shows Nifty IT and the Smallcap Indices are inside the leading quadrant. The Realty Index is also inside the leading quadrant, and it appears to be maintaining its relative momentum against the broader market. These groups are likely to continue to relatively outperform the broader Nifty Index.
Nifty Metal, Midcap and Commodities Indices lay inside the weakening quadrant. Nifty Pharma, PSE, Auto, Energy, Media and the PSU Bank Indices continue to languish inside the lagging quadrant. Out of these three, the PSU Bank Index is showing signs of mild improvement in the relative momentum.
Bank Nifty and the Nifty Infrastructure Index also stay inside the lagging quadrant. However, they appear to be improving their relative momentum for the better and may show resilience in the coming days.
FMCG, Services Sector and Consumption indices are in the improving quadrant and may continue to better their relative outperformance against the broader market.
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)