In the week before this one, the Markets had shown first signs of some fatigue as it had ended on a negative note leading to a dark cloud formation on the candles. Over the past five days, the Indian equity markets extended its correction; it went on to test and even violate the immediate important support levels to end the week with a cut. The trading range remained much wider; the week saw the index trading in a wide 728.95-point range. While continuing to stay under relentless session pressure, the markets have not shown any signs of any technical pullback. By Friday, the headline index ended with a net loss of 443.25 points (-2.45%) on a weekly basis.
Although there are chances of a technical pullback in the coming week; the week is a very truncated one with practically just three trading days. Thursday will just have a symbolic one-hour Mahurat Trading Session while Friday will be a trading holiday on account of Diwali-Balipratipada. This will ultimately translate into just a 3-day trading week as the Mahurat session just sees symbolic trades. The NIFTY has tested an important 50-DMA level on the daily chart which presently stays at 17565. The options data also shows 17500 holding maximum Put OI. However, on the higher side, 18000 has maximum Call OI concentration followed by 17800 levels.
Volatility remained largely unchanged. INDIAVIX declined by just 0.68% to 17.42 on a weekly note. The coming week is likely to see the levels of 17800 and 17890 acting as resistance levels. The supports come in at 17550 and 17500 levels.
The weekly RSI is 65.62; it has slipped below 70 from the overbought area which is bearish. It stays neutral and does not show any divergence against the price. The weekly MACD is still bullish, and it remains above the signal line.
A large black candle emerged. This showed the directional consensus of the market participants that prevailed through the entire week.
The NIFTY has come off nearly 1000-points from its lifetime high. However, even during the declining days, few pockets of the markets including the broader markets continued showing great resilience. The markets are due for some technical pullback for two reasons. For, it has seen a near-vertical corrective move of 1000 points from the levels of 18600; and secondly, Friday’s session has added a large number of shorts being added to the system. NIFTY November futures have added over 3.31 lakh shares or 3.18% in net Open Interest. We recommend staying light on leveraged exposures, avoiding shorts, and using downsides, if any, to make modest purchases.
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 NIFTY IT, and the Small Cap Indexes are inside the leading quadrant. The Realty Index is also inside the leading quadrant, and it also appears to be maintaining its relative momentum against the broader markets. These groups are likely to continue to relatively outperform the broader NIFTY Index.
NIFTY Metal, Midcap, and the Commodities Index lay inside the weakening quadrant.
NIFTY Pharma, NIFTY PSE, Auto, Energy, NIFTY Media, and the PSU Bank Indexes languish inside the lagging quadrant. Out of these three, the PSU Bank Index is showing mild signs of improvement in its relative momentum.
Banknifty and the NIFTY Infrastructure Index also stay inside the lagging quadrant. However, they appear to be improving their relative momentum for the better and may perform resiliently over the coming days.
FMCG, Services Sector, Consumption, and the Services sector indexes are in the improving quadrant and may continue to better their 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)
