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Dalal Street week ahead: Nifty unlikely to see meaningful upside; a slip below 12,004 mark will make it bleed

The domestic equity market continued to trade on the anticipated lines, consolidated around critical levels throughout the week gone by and ended flat with negligible loss. Just as we had projected in the last weekly note, Nifty did not make any major headway and the upside remained capped.

While continuing to remain within a broad trading range and keeping its head above the critical short-term support, Nifty ended with a minor loss of 32.60 points, or 0.27 per cent.

From a technical perspective, Nifty has managed to keep its head above the short-term 20-week moving average, which currently stands at 12,004. In the coming days, it will be critically important for Nifty to stay above this level, failing which we may see incremental weakness in the market.

India Volatility Index, INDIA VIX, increased 0.62 per cent to 13.70. Short covering at lower levels and unwinding at higher levels characterised the market behaviour through the week gone by.

weekly market outlook

The market is likely to see a soft and lacklustre start in the week ahead, and the 12,080 and 12,170 levels are expected to act as overhead resistance, while supports will come in at 11,930 and 11,850 levels. In the event of any correction, Nifty’s trading range on the downside is expected to get wider than usual.

The weekly Relative Strength Index (RSI) stood at 56.19; it remains neutral and does not show any divergence against price. The weekly MACD remains bearish, and trades below the signal line. A Doji had occurred in the previous week; this time, it was followed up by a candle with a long lower shadow. These candles indicate indecisiveness among market participants and may temporarily stall any up-move.

Pattern analysis on the weekly charts showed Nifty remains within a broad trading range, hovering around the important Double Top resistance that exists near the 12,100 level. As of today, the index has kept its head above the 20-week moving average, which is currently placed at 12,004. Any slip below the 20-week moving average will increase the possibility of the index testing its 50-week MA in the coming week.

All in all, Nifty is less likely to show any meaningful upside in the coming week. On the other side, any slip below the 20-week moving average will invite incremental weakness in the market. Any pullback witnessed over the past couple of days has been solely on the back of short covering, as it happened with a decline in net Open Interest.

Given this technical setup, we would strongly recommend remaining light on positions and continue using upsides, if any, to protect profits at higher levels.

In our look at Relative Rotation Graphs, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95 per cent of the free-float market-cap of all the listed stocks.


rotation graph 1

rotation graph 2


A review of the Relative Rotation Graphs (RRG) showed the market will continue to see relative outperformance in smallap and midcap groups in the coming day with stock-specific performance, as these groups are seen to be rotating favourably while staying in the leading quadrant. Realty and metal indices are also in the leading quadrant, but they are gradually paring their relative momentum. However, stock-specific outperformance cannot be ruled out.

Along with this, we also expect the IT, media and pharma groups to favourably rotate while remaining in the improving quadrant as they are incrementally building upon their relative momentum. They may stay resilient and relatively outperform the broader Nifty500 index.

Bank Nifty and Financial Services indices are slipping into the weakening quadrant while auto has entered the lagging quadrant. Along with it, Energy and PSU Bank groups continue to lose ground consistently. These groups, collectively, are likely to relatively underperform the broader market. The FMCG and Consumption indices, along with the Infrastructure group, are in the process of bottoming out in the near term, but they still have some ground left to cover before this process gets completed.

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 Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)
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