Nifty oscillates in a 784-point range in the previous week; this week that range narrowed to 546 points. Such a wider-than-usual trading range explains the liquidity gush occurring in line with the risk-on trade setup seen across global markets. Even as Nifty stayed below the key resistance point, it ended with a net gain of 271.50 points, or 2.72 per cent on a weekly basis.
While Nifty surged 7.4 per cent during the week, volatility cooled off a bit.
Volatility index INDIA VIX came off 2.78 per cent to 29.97. During the week before this one, Nifty had seen the 200-week moving average act as a strong resistance point. The 200-DMA currently stands a 10,368, and it will continue to pose very stiff resistance to the indec going forward.
In the event of an extension of the current move, Nifty’s price action vis-à-vis this level will be crucial to watch in the coming weeks. In the coming week, Nifty is expected to face overhead resistance at 10,368 and 10,435 levels, while supports will come in relatively lower at 10,135 and 9,960 levels. Like the previous week, Nifty trading range will continue to remain wider-than-usual this time as well.
The weekly RSI stood at 50.20. It remains neutral and does not show any divergence against the price. This lead indicator often finds resistance in the 50-60 zones during bear market moves. It will be important to watch this level going ahead.
The weekly MACD remains bullish and trades above the signal line. A White Body Candle emerged on the candles. Apart from this, no other formations were noticed.
Pattern analysis suggests Nifty has managed to crawl above the decade-old upward rising trend line. In a way, this was an extraordinarily strong support that the market has breached on the downside. The significance of the breach of this support is that this was supposed to act as a very strong resistance on the way up. However, it posed resistance only once before the Nifty moved past it. The index may now face resistance at the 200-week moving average in the coming days in the event of continuation of the current up-move.
Short-term traders have little choice but to keep following the trend. However, given the present technical setup, chasing such wild moves on the higher side is making the risk-reward ratio less favorable. To handle such a situation, it would be prudent to chase the momentum. But one must do so vigilantly with trailing stop losses, as this would help protect a major portion of profits in the event of any sharp corrective move.
We reiterate staying highly stock-specific and moving along with the uptrend with a great degree of caution. A rapid move on the higher side is making the setup somewhat unhealthy.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95% of the free float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) shows the sectoral setup is progressing on the expected lines. No untoward or sudden move was noticed in any sector. Consumption and the IT indices, which were about to slide in the weakening quadrant, has slipped into the weakening quadrant this week. The FMCG Index has moved further down in the weakening quadrant.
Nifty Energy and Infrastructure indices remain in the leading quadrant. Along with these two groups, Nifty Pharma and Commodities indices also remain in the leading quadrant, though the pharma group appears to be slowing down in terms of relative momentum.
However, these four groups will continue to relatively outperform the broader Nifty500 Index in the coming week.
NIFTY Media, Metal and Auto Indices are in the improving quadrant; they are seen maintaining their relative momentum against the broader market. However, Nifty PSE Index appears to be taking a sharp negative rotation back towards the lagging quadrant.
The Bank Nifty and Realty, PSU Banks, Services Sector and Financial Services groups are seen sharply improving their relative momentum. However, they still remain in the lagging quadrant and have not completed their bottoming out process.
Important Note: RRG™ 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 [email protected]) Milan Vaishnav, CMT, MSTA
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