It was the second week in a row that remained predominantly corrective in nature as the benchmark index NIFTY50 ended on a negative note. Despite the negative week, there were feeble signs of the NIFTY trying to find some support and form a temporary base for itself. The trading range remained that of 762.50-points; somewhat similar to the 865-point trading range in the week before this one. Some pullback was witnessed as the NIFTY rebounded a bit after testing the lower Bollinger band. The directional bias continued to remain bearish; the headline index finally ended with a net loss of 515.20 points (-2.92%) on a weekly basis.
With the monthly derivatives expiry done and dusted, we enter one of the most important weeks of the trading in a year. We head into Union Budget which is slated to be presented on February 01, on Tuesday. By far, this remains the most important domestic event for the markets as always; however, the technical structure remains somewhat different this time. Usually, we have the markets have a run-up ahead of the Budget on expectations; this time, the things are quite the opposite. There has been a sharp corrective move ahead of the Budget; this somewhat lets the market go in for the Union Budget on a much lighter note than usual. We will have higher possibilities of the markets giving positive reactions to the slightest of the favorable announcements in the Budget.
Volatility continued to rise; INDIAVIX surged 9.57% to 20.69. The coming week is expected to see the levels of 17300 and 17485 acting as resistance points. The supports come in at 16910 and 16800 levels. The trading range for the coming week will continue to remain broader than usual.
The Relative Strength Index (RSI) on the weekly chart is 49.63; it remains neutral and does not show any divergence against the price. The weekly MACD remains bearish and trades below the signal line.
Despite the severity of the corrective moves witnessed over the past weeks, there is no structural technical damage on the weekly charts. The pattern analysis suggests that the NIFTY may be trading below the 20-Week MA, but it trades well above the 50-, 100-, and the 200-Week MA. So long as the most immediate 50-Week MA which presently stands at 16347 stands defended, the markets will just be under broad-ranged consolidation.
Even taking things on a conservative note, the most crucial and important thing that markets will need to do is to defend the low point of 16400 levels in the event of any negative reactions to the Budget. Although this seems very much unlikely that there may be any major negative in store for the markets, defending this point will keep the markets in a ranged consolidation. The broader markets will continue to relatively outperform and there are chances that we may also see some risk-on environment in the markets. We recommend avoiding taking heavy exposures ahead of the markets; while avoiding shorts, selective purchases may be made once the Budget is fully digested by the markets.
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 while the IT sector has shown strong paring of relative momentum while staying in the leading quadrant, the Energy Index has rolled inside the leading quadrant again. Apart from this, the Auto Index is also inside the leading quadrant.
The Realty and the Media indexes continue to languish inside the weakening quadrant along with the Midcap and the PSU Bank Index. The PSU Bank Index appears to be rebuilding on the relative momentum front.
NIFTY Services Sector Index is seen rolling back inside the leading quadrant. NIFTY Bank and the FMCG Indices are inside the lagging quadrant; however, they appear to be improving on their relative momentum along with the NIFTY Financial Services Index.
NIFTY Pharma and the Metal indices are inside the improving quadrant. They are likely to show stock-specific relative outperformance 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)
