Dalal Street Week Ahead: The market will not see any boom next week; select sectors to outperform

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Most of the past five sessions have been spent on a corrective note by Indian equity markets. There were rebounds that did not hold. Nifty struggled to keep its head above the 200-DMA level.

The previous week saw a wide trading range of 590 points. Nifty failed to break above the 17,500 level. While trading in line with the general weakness in the global trade pattern, it declined throughout the week and ended in a net loss of 303, 70 points (-1.74%) on a weekly basis.

The coming week is also an expiration week. We will have a monthly expiration of derivatives, which is sure to influence trading.

However, the 17,500 level continues to hold the highest Call OI accumulation. For any lasting upward movement to occur, it will be particularly important to move past this point. That said, Nifty slightly breached a trendline support on Nifty. It took support on the 50 week MA which stands at 16,935. This level remains crucial support on a closing basis for Nifty in the short term.

It also again violated the 200-DMA on the daily charts. 200-DMA stands at 17,193. Over the next few weeks, Nifty’s price behavior against the 17,000 levels will be crucial to watch.

Volatility has increased a little. The Indian VIX rose 3.19% to 18.35. The coming week should remain limited.

Upsides, if any, should remain capped at 17,500 levels. At the bottom, breaching 17,000 would mean further weakness for the markets. The 17,350 and 17,535 levels will act as immediate resistance points for Nifty. Support should come in at the 17,000 and 16,880 levels.

The weekly RSI is 49.85. It remains neutral and shows no divergence from the price. The weekly MACD turned bearish again after a negative crossover. It is now trading below the signal line.

Pattern analysis shows that Nifty slightly breached the extended trendline support level briefly. However, he managed to close in on it. This trendline starts from 15,400 levels and joins the next high point and expands.

Nifty also defended the 50-week MA from now, which remains an important support level to watch over the next few weeks.

Overall, the markets are less likely to see a bullish move in the coming week.

On a technical pullback, upside moves can be capped at nearly 17,500 levels. On the lower side, the defense of the 50-week MA on a closing basis will be very important for the markets. The safe and prudent way to navigate such a technically tricky market would be to be very stock-specific in approach.

It would be wise to stick to low beta stocks. Also, focusing on defensive pockets like FMCG,

pharmacy and consumption would also be chargeable. A cautious approach is advised for the week ahead.

In our Relative Rotation Graphs® analysis, we benchmarked various sectors against the CNX500 (NIFTY 500 Index), which accounts for over 95% of the free-float market capitalization of all listed stocks.

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Relative Rotation (RRG) chart analysis shows that the Commodities, Energy, Pharmaceuticals and PSE indices are placed in the leading quadrant and can relatively outperform the broader markets. The Commodities and Metals indices are also inside the leading quadrant, but are seen to give up relative momentum.

The nifty infrastructure index also retreated inside the main quadrant. PSU Banking Group continues to languish inside the weakening quadrant. The media is also inside the weakening quadrant, but is greatly improving its relative momentum against the broader NIFTY500 index.

The computer index is also improving its relative momentum while remaining in the lagging quadrant with the real estate index. Bank Nifty has been rolling inside the lagging quadrant and the financial services group also continues to languish inside this quadrant.

All of these groups are likely to relatively underperform the broader markets. The FMCG and Consumption Pack are firmly inside the improvement quadrant. They are expected to do well over the coming week.

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.

(Milan Vaishnav, CMT, MSTA, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. He can be contacted at [email protected])

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