Dalal Street Week Ahead: Market won’t see runaway upmove next week; select sectors to outperform

The previous week saw a wide trading range of 590 points. Nifty failed to move past the 17,500 level. While trading in line with the overall weak global trade setup, it declined through the week and ended with a net loss of 303.70 points (-1.74%) on a weekly basis.

The coming week is also an expiry week. We will have monthly derivative expiry, and this is bound to influence the trade.

However, the level of 17,500 continues to hold the highest Call OI accumulation. For any sustainable up move to happen, moving past this point will be particularly important. Having said this, Nifty has mildly violated a trend line support on Nifty. It has taken a support on the 50-Week MA which stands at 16,935. This level remains a crucial support on a closing basis for Nifty in the near term.

It has also violated the 200-DMA again on the daily charts. 200-DMA stands at 17,193. Over the coming weeks, Nifty’s price behavior against the 17,000 levels will be crucial to watch.

Volatility increased a bit. India VIX rose by 3.19 per cent to 18.35. The coming week is likely to remain range bound.

The upsides, if any, are likely to stay capped at 17,500 levels. On the lower side, violating 17,000 would mean some incremental weakness for the markets. The levels of 17,350 and 17,535 will act as immediate resistance points for Nifty. Supports are likely to come in at 17,000 and 16,880 levels.

The weekly RSI is 49.85. It stays neutral and does not show any divergence against the price. The weekly MACD has turned bearish again following a negative crossover. It now trades below the signal line.

The pattern analysis shows that Nifty has mildly violated the extended trend line support level briefly. However, it has managed to close above it. This trend line begins from 15,400 levels and joins the subsequent high point and extends itself.

Nifty has also defended the 50-Week MA as of now which remains an important support level to watch over the coming weeks.

All in all, there are less chances of the markets seeing any runaway up move in the coming week.

In the event of any technical pullback, the upside moves may get capped near 17,500 levels. On the lower side, defending the 50-Week MA on a closing basis will be very important for the markets. The safe and prudent way to navigate such technically tricky market would be to be highly stock specific in the approach.

It would be wise to stick to low beta stocks. Also, focusing on defensive pockets like FMCG,

pharma and consumption would pay off as well. A cautious approach is advised for the coming week.

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) shows that the commodities, energy, pharma, and the PSE indices are placed inside the leading quadrant and may relatively outperform the broader markets. The commodities and metal indices are also inside the leading quadrant, but they are seen giving up on their relative momentum.

Nifty infrastructure index has rolled back inside the leading quadrant as well. The PSU bank group continues to languish inside the weakening quadrant. Media too is inside the weakening quadrant, but it is improving sharply on its relative momentum against the broader NIFTY500 Index.

The IT index is also improving its relative momentum while staying inside the lagging quadrant along with the realty index. The Bank Nifty has rolled inside the lagging quadrant and the financial services group also continues to languish inside this quadrant.

All these groups are likely to relatively underperform the broader markets. The FMCG and the consumption pack are firmly inside the improving quadrant. They are expected to do well over the coming week.

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 protected])