The domestic equity market was one of the most resilient among its peers; it has gone on to relatively outperform and emerge the best performer globally for this calendar. All the five days of the week saw trending sessions with very little and shortlived consolidation. The trading range remained wider than expected; Nifty traded in a 621-point range over the past week. The headline index finally ended with a net gain of 268 points, or 1.52 per cent, on a weekly basis.
The coming week is going to be crucial for Nifty50. Options data showed that the frontline index may consolidate given the very high accumulation of Call Open Interest between 17,800 and 18,000 levels. This may prevent the 50-pack from any runaway rise. However, a look at Bank Nifty and other sectoral indices like PSU banks, PSE shows a higher likelihood of these pockets starting to relatively outperform Nifty as well as the broader Nifty500 indices. Volatility has also increased; India VIX rose 11.09% to 16.92 level on a weekly basis.
The market, i.e., frontline indices like Nifty, may now see some consolidation, though select pockets still have some more steam left in them. The coming week will see the 17,900 and 18,030 levels play out as key resistance points for Nifty, while supports may come in at the 17,760 and 17,600 levels.
Contrary to what was expected in the previous week, the trading range may narrow down, if Nifty heads towards consolidation.
The weekly RSI stood at 80.88; it made a fresh 14-period high, which was a bullish signal. It remained in the overbought zone. However, it also stayed neutral and did not show any divergence against the price. A strong White Candle emerged; this reflected strong directional consensus among the market participants on the upside.
All and all, the market continued to be overextended on both short-term as well as long-term charts. However, the market’s internal strength remains intact as of now; and no signs have emerged to signal any major weakness in the coming days. The only thing that is likely is that Nifty may undergo some consolidation, which may not only see the index move in a defined range, but also increase volatility.
In the given technical setup, any fresh sustainable bounce shall occur only if Nifty moves past the 17,940 level convincingly. Until that happens, we are in for some rangebound consolidation.
During such times, we will find other sectors stage a resilient performance. These are likely to be the ones that have been either under consolidation or those that are seeing improved relative strength against the broader market. We recommend avoiding shorts unless definite signs of weakness emerge. On the other hand, one has to stay highly selective, and adopt a cautious approach by vigilantly protecting profits.
In our look at the 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.
An analysis of the Relative Rotation Graphs (RRG) showed the Smallcap index, that resides inside the leading quadrant, is slowly paring its relative momentum. The Realty and IT indices are placed inside the leading quadrant and are likely to continue their relatively outperformance against the broader market.
Nifty FMCG, Consumption, Financial Services and Infrastructure Indices are inside the improving quadrant; they are also seen rotating in the northeast direction and appear to be moving towards the leading quadrant. These groups are also set to put up a resilient show compared with the broader market.
Bank Nifty has rolled inside the improving quadrant. This hints at a likely end to its relative underperformance against the broader Nifty500 index.
The Metals, Midcap100 and the Commodities indices remain in the weakening quadrant. Pharma is languishing inside the lagging quadrant as are Energy, Media, Auto, PSU Bank and the PSE indices. However, the last five are improving their relative momentum against the broader market.
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)
