Dalal Street week ahead: Nifty50 respecting key supports but avoid aggressive bets

We once again have a truncated week as Friday will be a trading holiday on account of Gurunanak Jayanti.

Nifty is clinging on to a rising trend line support on the weekly charts. Meanwhile, on the daily chart, it is busy defending a head and shoulder pattern which can potentially turn bearish. However, to avoid this weakness, Nifty will have to move past 18,130 as soon as it can. Upon failing, the index may invite some weakness again and stay under a broad consolidation. The levels of 18,145 and 18,365 will act as resistance points. The supports come in at 18,010 and 17,800 levels.

The weekly RSI is 69.41 and neutral. It does not show any divergence against the price. The weekly MACD, meanwhile, is bullish and above its signal line. However, the narrowing slope of the Histogram suggests the possibility of this indicator showing a negative crossover in the coming weeks.

On the charts, Nifty formed a candle with a small real body and somewhat longer lower shadow. No major formations were noticed on the candles. The pattern analysis shows that the Nifty has managed to stay above the upper rising trend line. This trend line begins from the low point formed in March 2020 and joins the subsequent higher bottoms. It would be crucial for the Nifty to stay above this rising trend line pattern support.

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All in all, the markets are precariously hanging to the supports. While on one hand, the supports have not violated but on the other hand, a clear trend on the upside has also not resumed. Thus, it is recommended to avoid any aggressive leveraged exposures on either side. Unless a directional bias is established, the risk-reward ration will stay adversely skewed regardless of the kind of exposures taken.

It is also recommended to continue staying highly stock-specific and selective in approach towards the markets.

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

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The analysis of Relative Rotation Graphs (RRG) does not show any major structural change in the setup. It has just seen rotations advancing further from their respective places over the previous week.

The Energy, Media, Realty, PSE, Infrastructure, and Midcap indices are inside the leading quadrant of the RRG. These groups are likely to relatively outperform the broader markets. The Consumption Index is also inside the leading quadrant, however, it is giving up its relative momentum at present.

Nifty IT index stays inside the weakening quadrant. Nifty Pharma, Metals, and the Commodities indices are inside the lagging quadrant. All these three are showing improvement in their relative momentum against the broader markets. The FMCG index is also inside the lagging quadrant. It is seen languishing while paring its relative momentum against the broader markets. Nifty PSU Bank, Bank Nifty and Nifty Auto are inside the improving quadrant and appear to be firmly building on their relative momentum.

The Financial Services index is also in the improving quadrant but is seen rotating southwards while giving up on its momentum.

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]