Dalal Street Week Ahead: Nifty may see stable start but trade in a wide range

After spending some time struggling to take out the 17,500 levels, the market finally managed to move past it. Over the past five days, the index had a trading range of 700-odd points. The benchmark Nifty closed with decent gains of 517 points (up 3.02%) on a weekly basis.

The week was also important from a technical perspective.

The markets rebounded from the low point of 17,003, which is near to the all-important 200-DMA level that presently stands at 17,078. This level has now become near-term support for Nifty on a closing basis. On the weekly chart, Nifty has managed to move past the 20-week MA which recently stands at 17,272. From a medium-term perspective, the zone of 17,050-17,300 has now become an important support zone, which Nifty should be able to defend for now.

Volatility reduced over the past week. India VIX came off significantly by over 21% to 18.43.

Monday may see a stable start to the week. The levels of 17,800 and 17,905 will act as probable resistance points while the supports may come in at 17,500 and 17,320 levels. The trading range for the week will stay wider than usual.

The weekly RSI is 55.77 and stays neutral. It does not see any divergence against the price. The weekly MACD is bullish and stays below the signal line. However, it appears that the slope of the histogram is narrowing and if this continues, then we may see a positive crossover on this indicator in the coming weeks.

On tech charts, a strong white candle has emerged which reflects the bullish directional consensus of the market participants throughout the week.

The pattern analysis shows that Nifty slipped below the 50-Week MA which is presently at 16,762. However, it rebounded quickly and held that level as a support on a closing basis. Following the most recent up move, Nifty has also managed to stay above the trend line support and past the 20-Week MA which presently stands at 17,272.

Unless there are fresh negative triggers, it is expected that the market may continue trading higher even if they remain in a broad range. As long as Nifty stays above 17,300, which is the first pattern support on the weekly charts, the overall trend may stay intact. If Nifty holds above 17300, traders should avoid shorts; in fact, all downsides must be used to make select purchases. Moreover, given the geopolitical tensions continuing to stay fluid, aggressive positions and excess leverage should be avoided. While continuing to stay light on overall positions, a cautiously positive approach is advised for the coming week.

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

The analysis of Relative Rotation Graphs (RRG) shows that despite staying in the leading quadrant, Energy, Commodities, PSE, PSU Bank, and Nifty Bank indices are seen consolidating and giving up on their relative momentum. It is the Metal index that looks firmly placed inside the leading quadrant.

Nifty Auto index is seen diving further southwest while staying in the weakening quadrant. It is likely to continue to relatively underperform the broader markets. Nifty Media and Infrastructure indices also stay inside the weakening quadrant but they appear to be trying to improve on their relative momentum.

Nifty IT, which stays in the lagging quadrant, is sharply improving its relative momentum against the broader Nifty500 index. A similar move is also seen with the Consumption index which is on the verge of rolling inside the improving quadrant. The Midcap 100 and Realty indices are also inside the lagging quadrant but both the tails appear to be in a rising trajectory.

While Nifty Financial Service is seen turning back and moving towards the lagging quadrant, FMCG index is showing a healthy move inside the improving quadrant. This pocket may likely outperform the broader market on relative terms.

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
[email protected]