In a week that remained technically important, the markets pulled up from the lows that were marked in two previous weeks. The NIFTY saw a narrower trading range than the week before this one. The Index oscillated in a 446-points range over the past five sessions and remained largely trending on the upside. Except for some intraday intermittent hiccups, the markets largely edged higher. While continuing to stay within the falling channel and following a relatively quiet and less volatile week, the headline Index ended with a net gain of 192.05 points (+1.31%) on a weekly basis.
Over the past sessions, the NIFTY had violated the important rising trend line support; this trend line was drawn from the lows of March 2020 which joined the subsequent higher bottoms. However, the price action over the past couple of days has seen the Index trying to move above this trend line again. From the technical perspective, this would be important; if the NIFTY stays above this rising trend line, then we may even see the Index testing the upper edge of the falling channel. As of now, the NIFTY has everted any major weakness; it would be crucially important for the NIFYT to keep its head above 14500 to avoid any incremental weakness.
Contrary to expectations, the volatility reduces significantly. The INDIAVIX declined by 9.58% to 20.82 on a weekly note. The coming week may see a stable to a mildly positive start to the week. The levels of 15000 and 15200 will act as resistance; supports will come in at 14600 and 14480 levels. The trading range over the next five days is likely to stay wider than usual. The coming week is a truncated one again with Thursday being a trading holiday on account of Id-Ul-Fitr (Ramzan Id).
The weekly RSI is 60.85; it stays neutral and does not show any divergence against the price. The weekly MACD is bearish and currently, it is below its signal line. A while body occurred on the candles; this showed directional consensus among the market participants during the week.
Overall, the markets continue being in the corrective retracement. They remain within a falling channel; however, it had slipped below the upward rising support trend line while being inside the small falling retracement channel that is formed after the NIFTY marked its lifetime high at 15431. This trend line begins from the low point seen in March 2020 and joins the subsequent higher bottoms.
Broadly speaking, it is quite likely that the markets, in general, may continue to exhibit a tentative or defensive approach so long as the NIFTY is below the 15000 levels. We recommend that so long as the Index is below the 15000 levels, all moves on the upside should be utilized to protect profits and take some money off the table. Until then, all fresh purchases should be kept limited to low beta and defensive sectors and stocks. Only above 15000 levels, some high beta buying can emerge; however, until then a highly defensive and cautious 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 review of Relative Rotation Graphs (RRG) shows that NIFTY Metal, Commodities and the Small Cap Index stay in the leading quadrant and are seen maintaining their relative momentum. Apart form this, NIFTY MIDCAP100, and NIFTY PSE are also inside the leading quadrant; however, both indices are seen taking their breather and paring their relative momentum against the broader NIFTY500 Index.
NIFTY Infrastructure index has slipped inside the weakening quadrant. NIFTY PSU Banks and REALTY Indexes are seen continuing to pare their relative momentum while being placed inside the weakening quadrant.
NIFTY Bank has rolled over inside the lagging quadrant. NIFTY Services Sector, Auto, and Financial Services Index is also seen languishing inside the lagging quadrant. NIFTY Media Index is also inside the lagging quadrant; however, it is seen improving its relative momentum.
NIFTY Consumption Index has moved inside the improving quadrant marking a likely end to its relative underperformance. Energy Index has made a negative rotation and has moved inside the improving quadrant following a southwest rotation from the leading quadrant. The NIFTY Pharma Index appears to be firmly placed inside the Improving quadrant. Along with the Consumption Index, NIFTY IT Index has also rolled over inside the improving quadrant. These stocks are likely to relatively outperform the broader markets.
Important Note: RRG™ 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.
This was first published by The Economic Times.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)
