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Week Ahead: Staying Above This Level Crucial For NIFTY; RRG Charts And These Factors Offer Interesting Insights

While displaying some signs of imminent consolidation, the Indian equities took some breather in the previous week as it ended with a modest cut. The session remained a bit wider than the week before as the NIFTY oscillated in a 533-point range over the previous week. The past five days also saw the markets closing at yet another lifetime high, but it also saw the index paring some gains over the following days. From the technical perspective, some fatigue at higher levels was visible as the NIFTY closed with a net loss of 181.55 points (-1.20%).

The volatility stayed steady and did not show any spike yet; INDIAVIX rose by just 0.94% to 22.25 on a weekly note. We head into the expiry of the monthly derivative series and the coming week will see the sessions staying highly dominated with the rollover centric activities. The coming five day are also likely to remain in a capped and defined range. The weekly options data suggests that the Index may stay in a defined range of 15000-15300; any violation of 15000 will invite incremental weakness. The NIFTY PCR across all expiries stays at a healthy 1.19. It would be extremely crucial for the markets to move past and stay above 15000 level.

Despite this, it is quite necessary that market participants keep a keen eye on the Dollar Index which is in the hard process of marking a near-term bottom for itself, and on the spike in US Bond yields. Spike in yields, per se, is not harmful; however, it that happens on inflation fears, then it becomes a cause for a concern. Over the next week, the levels of 15300 and 15485 will act as resistance points; the supports will come in at 14900 and 14750 levels.

The weekly RSI stands sat 71.43; it stays neutral and does not show any divergence against the price. The RSI is also in the mildly overbought zone. The weekly MACD is bullish and stays above its signal line. A small bearish engulfing candle appeared on the charts. Its occurrence near the high point is a matter of concern; however, for any bearish implications, it will need a confirmation on the next bar.

The pattern analysis shows the NIFTY highly deviated from its mean. The fastest 20-Week MA stays at 13410 which is at quite a distance from here. This may not mean any overnight downtrend, but the present technical structure definitely has a potential to push the markets in a wide-ranged consolidation.

All and all, the NIFTY is likely to see some modest technical pullback in the initial week. To avoid any more weakness to creep in, it would be crucial for the NIFTY to crawl back above 15000 levels and stay above that. However, despite any expected technical pullback, the levels of 15431 have now become an intermediate top for the markets and the index will continue to witness session pressure following each up move unless this level is taken out convincingly. We reiterate staying extremely stock-specific and selective while approaching the markets as the broader non-confirmation of the market breadth continues to remain a concern.

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) does paint a highly tentative picture for the markets. It is only the NIFTY PSU Bank index which is inside the leading quadrant along with NIFTY Auto Index. However, both indices appear to be taking a mild breather. NIFTY Realty is inside the leading quadrant, but it is seen rapidly paring its relative momentum against the broader NIFTY500 Index.

NIFTY IT is in the weakening quadrant, but it is the only index which is seen continuing to sharply improve on its relative momentum. Along with very select banks, this Index may show some relative outperformance against the broader markets. The NIFTY MidCap 100, Financial Services, Services Sector, NIFTY Bank and Metal Indexes are inside the weakening quadrant as well, and they all appear to be steadily giving up on their relative momentum.

NIFTY Pharma is in the weakening quadrant, it has taken a turn for the negative and seems far from completion of its bottoming out process. Gross underperformance may continue in this sector unless it reverses. NIFTY Energy Index is seen taking a sharp turn for the better; it appears to be rolling over inside the improving quadrant if this direction of rotation continues.

Inside the improving quadrant are the FMCG and Consumption, NIFTY Media, and NIFTY PSE groups. These groups are faltering, appear to be rolling over towards the lagging quadrant. Only NIFTY Infrastructure Index which is also in the improving quadrant is seen maintaining its relative momentum against 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)

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