Dalal Street Week Ahead: The market will continue to remain very equity-specific in nature

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Dalal Street Week Ahead: The market will continue to remain very equity-specific in nature

Stock markets had an overall positive week, but overall sentiment remained quite muted as the Nifty swung back and forth in all five trading sessions before ending on a positive note.

The index saw itself break out of the 16400-15700 trading range which is quite wide in its own way; however, it suffered a pullback and consolidated again in a tight range.

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The trading range also remained a bit narrow; against the range of 511 points the week before this one, the Nifty hovered in a lesser range of 355 points.



While remaining largely positive, the index did not make a big leap forward. Nifty50 stock closed with a net gain of 231.85 points (+1.42%) on a weekly basis.

From a technical standpoint, the break above the 16400 levels has made this level the immediate support level for the short-term Nifty. On top of that, the Nifty has so far maintained the double bottom formed near the immediate low point of this range. The most immediate resistance the index has is the 50 week MA which currently sits at 17056; this again makes the 16400-17000 area another trade zone for the index.

Apart from that, volatility also decreased during the week; INDIA VIX fell 7.01% to 19.98.

The coming week remains crucial for the markets. The index is trading in a narrow trading zone; this will require a full push above the 17000 levels. The 16700 and 16950 levels will act as immediate resistance levels; supports should be at the 16520 and 16380 levels.

The weekly RSI is 46.47; it shows a slight bullish divergence from the price.

The weekly MACD is bearish and remains below the signal line. A spinning top emerged over the candles; this shows the hesitant and indecisive behavior of market players.

Pattern analysis shows that the index is trading below the 50 week MA which stands at 17056. However, it is trading above the 200 and 100 week MA.

The move towards the 50-week MA will also bring the index to very important pattern resistance; this pattern resistance is the trendline that was breached by Nifty on its way down.

Overall, we may continue to see the markets trading tentatively. Markets are widely expected to continue to remain heavily biased toward equities.

We can see isolated outperformance specific to stocks across all sectors rather than one particular sector dominating over the week. It would be extremely important to stick with the right type of stock. It is recommended that the focus be on avoiding shorts and using dips, if any, to make entries into stocks that are showing improvement in relative strength. We can expect a good show from pockets like Energy, PSE, Consumption, IT, etc. over the next few days.

In our analysis of the Relative Rotation Graphs®, we compared various sectors to the CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all listed stocks.

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Analysis of Relative Rotation Charts (RRG) shows that some pockets are losing momentum strength against the broader markets. The metals index drifted even lower inside the weakening quadrant. On top of that, the real estate index which had rolled inside the previous week’s improvement lost its relative momentum sharply and fell back inside the lagging quadrant. We could see these pockets relatively underperforming the broader Nifty500 index.

The Nifty Consumption, FMCG, Infrastructure, Pharma, PSE, Commodities and Midcap 100 indices are in the main quadrant. However, few of these groups appear to be giving up their relative momentum slightly against the broader markets.

Nifty Media fell inside the weakening quadrant; PSU Bank also continues to remain in the weakened quadrant.

The Nifty Services sector and the Nifty IT indices remain in the lagging quadrant. These pockets may see relative underperformance compared to broader markets, but some stock-specific issues in these groups cannot be ruled out.

The Bank Nifty and Financial Services indices rolled inside the improving quadrant.

Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 index (broader markets) and should not be used directly as buy or sell signals.

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