Except for some intermittent hiccups, the market broadly edged higher. While continuing to stay within the Falling Channel and following a relatively quiet and less volatile week, the headline index ended with a net gain of 192 points, or 1.31 per cent, on a weekly basis.
Over the past sessions, Nifty violated some important rising trend line supports; this trend line was drawn from the lows of March 2020, which joined the subsequent higher bottoms. However, the price action over the past couple of days has led the index to move above this trend line again. From a technical perspective, this would be important; if Nifty stays above this rising trend line, then we may see it test the upper edge of the Falling Channel.
As of now, Nifty has not shown any major weakness, and it would be crucially important for the index to keep its head above 14,500 level to avoid any incremental weakness.
Contrary to expectations, the volatility has dropped significantly. India VIX declined 9.58 per cent to 20.82 during the week. The index may see a stable to mildly positive start to the coming week and the 15,000 and 15,200 levels are likely to act as resistance, while supports will come in at 14,600 and 14,480 levels.
The trading range over the next five days is likely to stay wider than usual. The coming week is an truncated one with Thursday being a trading holiday on account of Id-Ul-Fitr (Ramzan Id).
The weekly RSI stood at 60.85 level. It remains neutral and does not show any divergence against the price. The weekly MACD looks bearish and is currently lying below the Signal Line. A while body occurred on the candles and this showed directional consensus among the market participants during the week.
Overall, the market continues to see a corrective retracement. The index remains within a Falling Channel. But it has slipped below the upward rising support trend line while being inside the small falling retracement channel, which was formed after Nifty marked its lifetime high at 15,431.
This trend line begins from the low point hit in March 2020 and joins the subsequent higher bottoms. Broadly speaking, it is quite likely that the market, in general, may continue to exhibit a tentative or defensive approach as long as Nifty stays below the 15,000 level. As long as Nifty stays below the 15,000 level, all moves on the upside should be utilised to protect profit and take some money off the table. Until then, all fresh purchases should be kept limited to low beta and defensive stocks.
Some high-beta buying may emerge only after Nifty tops the 15,000 level. Until then a highly defensive and cautious approach is advised for the coming week.
In our look at Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95 per cent of the free-float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) showed Nifty Metal, Commodities and Smallcap Indices stay in the leading quadrant and are maintaining their relative momentum. Apart from this, Nifty Midcap100, and Nifty PSE indices are also inside the leading quadrant. However, both the indices are seen taking their breather and paring their relative momentum against the broader Nifty500 Index. Nifty Infrastructure index has slipped inside the weakening quadrant. Nifty PSU Banks and Realty Indices continue to pare their relative momentum while being placed inside the weakening quadrant.
Nifty Bank index has rolled over inside the lagging quadrant, while Nifty Services Sector, Auto, and Financial Services Indices are languishing inside the lagging quadrant.
Nifty Media Index is also inside the lagging quadrant; however, it is seen improving its relative momentum. Nifty Consumption Index has moved inside the improving quadrant, marking a likely end to its relative underperformance. The Energy index has made a negative rotation and moved inside the improving quadrant following a southwest rotation from the leading quadrant. Nifty Pharma Index appears to be placed firmly inside the improving quadrant.
Along with the Consumption Index, Nifty IT Index has rolled over inside the improving quadrant. These stocks are likely to relatively outperform the broader market.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they showed relative performance against Nifty500 Index (broader market) 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)
