In the previous weekly technical note, it was mentioned that the geopolitical situations between Russia and Ukraine continue to remain fluid. However, the markets had added a lot of shorts and were prone to a short-covering led technical pullback. In line with these expectations, the NIFTY had a weak start to the week; it opened on a gap-down note on Monday, but the remaining four days of the week saw a strong recovery in the markets. This strong technical pullback was primarily fueled by short-covering, but a part of it was also from FII buying at lower levels. Following a wide 1085-point trading range, the NIFTY ended with net gains of 385.10 points (+2.37%) on a weekly basis.
The coming week is a shortened one; Friday is a trading holiday on the account of Holi. The markets will have a couple of important things to react to that including the FOMC meeting and the interest rate decision slated to come in the middle of this week. The rate hike of 50 bps was seen imminent and discounted by the markets; however, given the ongoing geopolitical tensions and fluid situations, the Fed may have to limit the rate hike to just 25 bps. Apart from this, the F&O data suggests a strong undercurrent; the weekly chart also hints at a likely continuation of the technical pullback over the coming days. On the short-term charts, the NIFTY’s behavior against the 200-DMA would be crucial to watch over the coming days.
Volatility too cooled off over the past few days. INDIAVIX came off by 9.34% to 25.34. In the event of the technical pullback continuing, the levels of 16850 and 17000 will act as potential resistance points. The supports are likely to come in at 16400 and 16225 levels. The trading range may not be as wide as it was in the previous week, but it is likely to remain wider than usual.
The weekly RSI is 45.42; it remains neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below the signal line. A strong bullish engulfing candle has emerged on the chart. The large size of the candle, its appearing following a corrective move lays a foundation for a potential point of reversal for the markets.
The pattern analysis on the weekly chart shows that the NIFTY had violated the 50-Week MA which presently stands at 16606. While the markets pulled themselves back, this technical pullback has halted near this point. In the coming week, it would be crucial to see if the NIFTY is able to move past this point comprehensively.
All in all, the geopolitical tensions have not died down yet; they continue to persist and it will not free the global markets from their shackle. However, in the same breath, the F&O data shows that the markets may just consolidate in a broad range and many not see major drawdowns unless there are serious incremental negative things to deal with. Also, the Federal Reserve’s decision on the quantum of the rate hike is something that the markets will react to. Overall, it would be prudent not to take excessive exposures on either side. The safer way to navigate the still-uncertain markets will be to remain light on positions and keep protecting profits on either side of the move.
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 Banknifty (NIFTY Bank), PSE, Metal, PSU Bank, Commodities, and the Energy indices are firmly placed inside the leading quadrant. These groups will continue to relatively outperform the broader markets. NIFTY Auto too is inside the leading quadrant but it is seen consolidating while giving up on its relative momentum.
NIFTY IT, Media, and Infrastructure indices stay inside the weakening quadrant; the infrastructure index is seen improving on its relative momentum.
NIFTY Realty is seen languishing inside the lagging quadrant along with the Consumption and the Midcap100 Index.
The FMCG, Financial Services, and Pharma indices are inside the improving quadrant. They are expected to put up a resilient show against the broader NIFTY 500 index.
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)
