Nifty marked a fresh lifetime high at 15,469. Following some retracement from that point, the headline index finally ended posting net gains of 260 points, or 1.2 per cent, on a weekly basis. In the last two weeks combined, Nifty has risen 757.85 points.
All throughout the week, Nifty staying above the previous high point of 15,431 will be extremely crucial. If that does not happen, then the high point of 15,469 will just remain an incremental high and no breakout shall occur. In the current technical setup, there are few technical points which are extremely important to keep an eye on.
Nifty has retraced from its high point; its moving past 15,469 convincingly will only lead to a breakout. While Nifty struggles at its high point, the volatility, measured by India VIX, which lost another 8.79% this week, stood at 17.40. This was one of the lowest levels in the recent past; seen only in early 2020. Further, the 15,350 level saw addition of heavy Call OI on Friday; and this level will continue to hold maximum Call OI for the coming week.
The opening of the market on Monday, and its behaviour against the 15,430-15,470 zone will be extremely crucial to watch. The 15,500 and 15,650 levels will act as key resistance points, while supports will come in much lower at 15,300 and 15,160 levels.
The weekly RSI stood at 65.99; it has marked a new 14-period high, which is a bullish signal. However, RSI is neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below the signal line.
Pattern analysis showed Nifty has tested a double top resistance on the weekly chart that exists at 15,431, which is also the previous lifetime high for the market. Nifty tested slightly higher levels but has closed very close to this point.
For a sustainable breakout to occur, Nifty will have to take this zone out convincingly. Options data, which shows highest Call OI concentration for next week expiry, may just be sending out a signal.
However, the more concerning technical factor is the sustained and persistent low levels of volatility, as indicated by India VIX. It is important to note that prolonged periods of low volatility are often followed by highly volatile periods. Such periods of low volatility, just as the present ones, show complacency of the market participants and often lead to marking of a potential top.
The inverse relationship between the index and the VIX is an established one, but very low levels of the VIX at the time of any attempted breakout, which is yet to actually take place, brings the sustainability of such breakouts in question when they happen. We recommend continuing to chase the momentum carefully without getting carried away by the current upmove.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95% of the free float market-cap of all the stocks listed.
A review of Relative Rotation Graphs (RRG) does not show any substantial change in the sectoral setup compared with the previous couple of weeks; except that a few sectors are attempting to take a breather and show some improvement in the relative momentum. Nifty IT and Metal Indices are in the leading quadrant and they appear to be maintaining their relative momentum against the broader market. The Smallcap and Nifty Midcap100 indices along with the Commodities index are also in the leading quadrant. However, they appear to be consolidating and, in the process, paring their relative momentum against the broader Nifty500 index.
Nifty PSU Banks, Infrastructure and the PSE indices are in the weakening quadrant. Out of these three, PSU Bank Index is trying to consolidate its performance at the present moment. Nifty Bank, Services Sector Index, Realty, Financial Services, and Auto Index; all these stay in the lagging quadrant. However, these groups are also trying to consolidate their respective moves and trying to arrest their loss of relative momentum. The Energy Index continues to languish in the lagging quadrant. The Media Index has rolled inside the improving quadrant, hinting at a likely end to its relative underperformance against the broader markets. Pharma index stays firmly placed inside the improving quadrant and appears to be maintaining its northeasterly rotation towards the leading quadrant.
FMCG and the Consumption indices seem to have mildly stalled their move; they appear to have slightly lost their momentum against the broader markets at present.
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 is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)