market outlook: Dalal Street Week Ahead: Market set to turn stock-specific; Bank Nifty could play catchup

After eight weeks of consolidation, the domestic equity market saw yet another breakout, as Nifty surged above the crucial the 15,900-15,950 zone. The past four session out of five saw the market inch higher relentlessly, as it not only demonstrated renewed strength, but also made the current breakout sustainable. Nifty moved in a 514-point trading range with a one-way directional bias throughout the week. Following such a strong move, the headline Nifty ended with a strong gain of 475 points, or 3.01 per cent, on a weekly basis.

From a technical perspective, the market has made itself stronger, and dragged its support levels higher. There is a breakout visible on the weekly charts as well. Any corrective move or broad consolidation will now see the 15,900-15,950 range play out as key support. Volatility continued to drop; the INDIA VIX came off marginally by 1.52% to 12.6100 level.

On the weekly charts, Nifty is in the uncharted territory once again. Options data showed Nifty may consolidate with a positive bias while maintaining its internal strength as long as it keeps its head above the 16,000 level. Nifty will see the 16,400 and 16,550 levels act as immediate resistance in the coming week, while supports may come in at 16,100 and 15,950 levels.

The weekly RSI stood at 69.39. It remains neutral and does not show any divergence against the price. The weekly MACD has shown a positive crossover; it is now bullish and stays above the signal line. A white body emerged on the candles; this showed a directional consensus among the market participants on the upside. Apart from this, no other major formation was seen on the charts.

Pattern analysis showed Nifty has staged a strong breakout after consolidating in a defined range for eight weeks. For this breakout to sustain and remain valid, Nifty will have to keep its head above the 15,900-15,950 zone. Bank Nifty has relatively underperformed and has moved away from its lifetime high point. It is largely expected that this index will play a catch-up in the coming week.
It is expected that the broader market will relatively underperform Nifty and is likely to become highly stock specific. We recommend focusing on the defensive largecaps from the consumption, FMCG, and IT baskets. Select banking stocks are also likely to outperform relatively. While the momentum may be followed as the Nifty continues to display strength, it should be done cautiously while protecting profits at higher levels.

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. The Nifty IT Index is seen rotating strongly inside the leading quadrant. It is evident that this group is set to outperform the broader market on a relative basis. The Smallcap Index is also inside the leading quadrant. However, it appears to be losing its relative momentum.

Nifty Metal remains inside the weakening quadrant along with Nifty Pharma Index. Apart from this, while Nifty PSE Index stays inside the weakening quadrant, Nifty PSU Bank index has rolled inside the weakening quadrant. The infrastructure index is inside the lagging quadrant along with services and the financial services index. However, these groups appear to be consolidating along with Bank Nifty. Collectively, they may either improve their relative performance or show some resilience and consolidation.

The FMCG and consumption indices are seen moving strongly inside the improving quadrant. They are likely to put up a good show along with select banks and the IT groups and post relatively better show going ahead from there.

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 market) 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 milan.vaishnav@equityresearch.asia)