This has helped Nifty push up support levels over the past week. While trading on expected lines, the domestic stock market showed resilience and ended the week with modest gains. Despite being overbought, the market has shown no signs of correcting over the past five sessions. It consolidated in a narrow range of just 182 points and closed with a gain of 45.65 points, or 0.26%, on a weekly basis.
The market remains overbought on the daily and weekly charts. However, the underlying currents are strong. And it’s also important to note that when the market is in a strong bullish trend, it tends to stay overbought for a while even as it consolidates.
Options data shows put option writing continued throughout the week between 17,200 and 17,400 levels. This makes the 17,000-17,200 area a strong support area for Nifty if a minor corrective move, or beach related consolidation occurs. There is no visible sign of a major correction. However, some consolidation in the range is very likely at current levels. Volatility has cooled slightly; India VIX lost 4.13% to 13.94.
Nifty is expected to have a positive start for the coming week, but the 17,480 and 17,595 levels could serve as potential resistance points at higher levels. Support on the lower side may reach the 17,200 level followed by the 17,120 level. The trading range should stay wider than usual.
The weekly RSI stood at 77.76; it is a neutral position and shows no divergence from the price. The weekly MACD remains bullish as it is above the signal line. A spinning top has occurred on the candles. This reflects a little price action and very little difference between the opening and closing levels for the week. This type of candle also indicates the absence of directional bias that has prevailed over the past five days.
Analysis of the weekly chart patterns showed that the main breakout that occurred when Nifty broke through the 15,900-15,950 area is still very much in effect. After each upward movement, the market consolidated for a while, only to resume the uptrend. As of now, that short term base has risen to the 17,000 level which should serve as immediate support if a larger fix or range related consolidation occurs.
FMCGs and consumer indices traded well. However, some underperformance has historically been seen in sectors such as autos, banking and some pharmacy names, as well as PSE stocks. We expect these sectors to improve their relative performance against the overall market in the coming weeks. We recommend that you avoid aggressive shorts and be very selective when shopping again. All profits should be guarded vigilantly, even if the larger main trend remains intact.
In our review of Relative Rotation Graphs®, we compared various sector indices to the CNX500 (Nifty500 Index), which represents over 95% of the free float market capitalization of all listed stocks.
Analysis of the relative rotation graphs (RRG) showed that the Nifty IT, Realty and Smallcap indices are in the main quadrant; among these, the Smallcap index is slowing its momentum. However, these groups are expected to continue to outperform the broader Nifty500 index on a relative basis.
The Midcap100, Commodities and Metal indices are inside the weakening quadrant. Although the Midcap index looks slightly weak, all three indices are trying to consolidate their current relative underperformance.
The Nifty Auto and Pharma indices continue to languish inside the quadrant lagging behind the media index. These groups are likely to underperform the broader market. The PSU Banks, Bank Nifty, Infrastructure, Energy and PSE indices are also found in the lagging quadrant. However, they appear to consolidate and improve their relative momentum relative to the overall market.
The financial services, service sector, consumer and FMCG indexes remain firm in the improvement quadrant. These groups are expected to continue to be resilient in the face of the larger Nifty500 Index.
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 (wider markets) and should not be used directly as signals to buy or sell.
(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])