Following such volatile moves, the headline index ended with a net loss of 217 points, or 1.46 per cent, on a weekly basis.
From a technical perspective, the week was especially important. Nifty violated the 20-week moving average, which currently stands at 14,411 level. While the index managed to close above this level, its breach is likely to violate the rising trend line drawn from the lows of the previous year. Meanwhile, Nifty has formed lower top and bottom on the charts, with the two Doji candles indicating indecisiveness and potential weakness. Volatility increased marginally as INDIA VIX rose 3.12% to 20.40. Maintaining above the 14,400 level will be of critical for Nifty not only next week, but also in the subsequent weeks.
Just like the previous one, the coming week will be a truncated one with Wednesday being a trading holiday on account of Ram Navami. The 14,735 and 14,900 levels are likely to act as immediate resistance points, while supports will come in at 14,400 and 14,280 levels. Any violation of the 14,400 level will make the trading range wider than usual.
The weekly RSI stood at 59.77 level. It has made a new 14-period low, which is a bearish signal. The weekly MACD is bearish; as it stays below the Signal Line. A Doji appeared on the candles. This is second such Doji that has appeared back to back, but the bar also has a lower top and bottom. So, the charts are reflecting both indecisive behaviour and a mild weakness.
Nifty has defended the 20-week moving average at 14,411 level. This level will be of crucial importance in the coming weeks; and Nifty breaching this level will mean violation of the rising trend line drawn from the lows of the 2020. In other words, keeping its head above 14,400 level will be of critical importance for the index.
The week also saw a moderate increase in volatility, which is likely to increase further in the coming weeks. Defensive stocks like pharma, IT and FMCG put up a resilient performance and this posture is likely to sustain in the coming days. Instead of chasing bounces, if any, investors should remain highly stock-specific and adopt a highly cautious approach towards the market.
In our look at Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95% of the free float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) does not show any change in the sectoral setup compared with what was seen in the previous week. Nifty Commodities, Metals and Midcap100 Indices continue to surge ahead, while staying firm in the leading quadrant. All these groups are likely to relatively outperform the broader market. The PSU Bank, Infrastructure, PSE and Smallcap Indices are seen losing their relative momentum despite being in the leading quadrant.
Nifty Services Sector, Financial Services, Nifty Bank and Realty indices are in the weakening quadrant; they continue to lose their relative momentum while rotating in the south-west direction. Nifty Auto Index has rolled inside the lagging quadrant. This is likely to relatively underperform the broader market along with Nifty Media Index, which continues to languish in the lagging quadrant. Nifty Pharma Index is also inside the lagging quadrant. However, it appears to be improving sharply on its relative momentum along with the FMCG and IT Indices.
Nifty FMCG Index has rolled inside the improving quadrant. This hints at a likely end to relative underperformance of this sector. Nifty Energy Index is inside the improving quadrant and appears to be maintaining its relative momentum against the broader market.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against the Nifty500 Index (broader market) 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 firstname.lastname@example.org)