Capture

In our last weekly note, we had mentioned that following eight weeks of consolidation, Nifty has finally staged a breakout, while dragging its support levels considerably higher. In the next five days, Nifty extended its gains as it closed at yet another lifetime high. The trading range, though, was relatively narrow as Nifty consolidated fiercely in the first half of the trading week. It eventually resumed its bounce and extended the gains. The market closed with Nifty posting a net gain of 290.90 points, or 1.79 per cent, on a weekly basis.

It is beyond doubt that Nifty has not only shown a strong breakout, but it has also extended the gains after a strong intermediate consolidation. Going ahead from here, there are higher chances that Nifty would protect its gains and once again consolidate in a defined range with a positive bias. Meanwhile, it is also the time when the sectors that have underperformed, will try, and play catchup. They include Bank Nifty, FMCG, Consumption and IT indices along with other specific stocks. Volatility increased a bit; INDIAVIX rose 3.03% to 12.99.

The market is likely to attempt to inch higher in the coming week. If Nifty is able to keep its head above 16,500 level, it is very much likely to extend its bounce. On the other hand, a slip below the 16,500 level will cause the market to undergo defined and rangebound consolidation once again. The 16,590 and 16,700 levels will act as potential resistance points, while supports will come in at 16,300 and 16,210.

The weekly RSI stood at 72.11; it marked a new 14-period high which is a bullish indication. The RSI is mildly overbought. However, it remains neutral and does not show any divergence against the price. The weekly MACD is bullish and remains above the Signal Line. A strong White Body emerged on the candles. It shows directional consensus among the market participants.

Pattern analysis showed Nifty has not only crawled above the rising trend line support that it had violated, but has managed to stage a clean breakout. In the process, it has dragged its support level higher to 16,000 level. Any negative move or a broad consolidation will help this level play out as a major support in the immediate near term.

The analysis for the coming week would be on the same lines as last week. The market is now in the uncharted territory. It would be prudent to continue following every rise with strict trailing stop losses in place to protect profits at higher levels. The sectors that need to perform if the market are to sustain gains will start playing catchup as mentioned earlier. We recommend focusing more on the largecaps, as the broader market is likely to relatively underperform the front line Nifty from here on. A cautiously positive outlook is advised for the coming week.

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.

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An analysis of Relative Rotation Graphs (RRG) showed Nifty Realty and IT Indices are the two most dominant groups in the leading quadrant. These indices and their constituents will continue to relatively underperform the broader Nifty500 index. The Smallcap Index is also inside the leading quadrant; however, it appears to be paring its relative momentum.

Nifty Midcaps, Metals, Commodities, PSE, and PSU Banks indices are inside the weakening quadrant. They are unlikely to put up any major show except some few stock-specific moves.

Nifty Auto and Energy Indices continue to languish inside the lagging quadrant. There are greater chances of relative under performance from these groups. Bank Nifty and Nifty Infrastructure Index are also inside the lagging quadrant. FMCG, Consumption and Nifty Services Sector Indices are inside the improving quadrant.

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 milan.vaishnav@equityresearch.asia)

Nifty: Dalal Street week ahead: Which pockets may play catchup, which ones may lag

By ariox