In the truncated week that went by, the NIFTY traded much on the analyzed lines. Despite still being volatile, it largely remained buoyant while extending its move on the upside.
In the previous week’s technical note, there was a categorical mention of the possibility of the NIFTY Bank Index (BankNifty) playing catch-up given its relative underperformance. This index closed at a new high and the NIFTY closed at its fresh 52-week high, while being a whisker away from the lifetime high point of 18604. In the four-day trading week, the index moved in a 392.90-point range, before closing with a net gain of 232.55 points (+1.28%).
From a technical perspective, two distinct scenarios might unfold over the coming week. First, the headline index NIFTY50, which is now within striking distance of its lifetime high point of 18604, may start seeing some resistance as it approaches the higher levels. Secondly, there is a strong possibility for the BankNifty to stage a breakout if it can keep its head above the 42000 level. If this does not happen, we may see both indices consolidate at higher levels. In any case, if the up move is extended, it would be wiser to focus on protecting profits at higher levels, as the NIFTY would approach its key resistance point in the form of the previous lifetime high level.
Volatility continued to slide; INDIAVIX came off by another 7.98% to 14.40. This is one of the lowest levels seen this year. The coming week is likely to see a stable start; the levels of 18400 and 18590 are likely to act as potential resistance points. The supports come in at the 18000 and 17880 levels.
The weekly RSI is 64.21; it has marked a new 14-period high, which is bullish. It remains neutral and does not show any divergence against the price. The weekly MACD is bullish and remains above the signal line. A candle with a long lower shadow has emerged on the charts. The lower shadow is not long enough to be called a classical “hanging man,” but it definitely warrants some caution; moreso when it appears to be following a steep up-move in the markets.
The NIFTY remains within a striking distance from the lifetime high point of 18604. The global markets are largely stable; this may help the Index to inch higher. However, there is the possibility that the NIFTY starts facing resistance as it travels towards its previous high point. While BankNifty is clearly stronger in relative terms to NIFTY and may relatively outperform, it is would be a prudent approach to focus more on protecting profits at higher levels until NIFTY itself achieves a breakout from the previous high. It would be wise not to chase the final up-move toward the lifetime high of NIFTY; instead, it would be more rewarding if one focuses on reducing exposures, protecting profits, and taking some money off the table.
The markets are inherently buoyant; there are few possibilities of any corrective move happening. However, at the same time, possibilities of consolidation at higher levels cannot be ruled out. A cautiously positive outlook is advised for the coming week.
Sector Analysis 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 analysis of Relative Rotation Graphs (RRG) shows Nifty Bank, Metals, and the PSU Bank Index in the leading quadrant. These groups are likely to relatively outperform the broader markets. As evident, the Metal and the PSU Bank Index show strong relative momentum against the broader markets. Further to this, the kind of distance that the PSU Bank has traveled from the center point shows the kind of Alpha that this index has generated against the benchmark.
NIFTY Financial Services, Mid-cap 100 Index, FMCG, Consumption, and NIFTY Auto Index are inside the weakening quadrant. These may result in relative underperformance of these sectors against the broader markets.
The NIFTY Energy and NIFTY Realty Indexes continue to languish inside the lagging quadrant; they may continue to show weak relative performance as well against the NIFTY500 index.
The NIFTY Pharma, PSE, Infra, Media, IT, and the Commodities Indexes are inside the improving quadrant. They may continue to show improvement in their relative momentum and are likely to put up a good show 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.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Milan Vaishnav, CMT, MSTA is a capital market professional with experience spanning close to two decades. His area of expertise includes consulting in Portfolio/Funds Management and Advisory Services. Milan is the founder of ChartWizard FZE (UAE) and Gemstone Equity Research & Advisory Services. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India’s most accurate “Daily / Weekly Market Outlook” — A Daily / Weekly Newsletter, currently in its 18th year of publication.