Nifty’s trading range this past week was lower at 400-odd points compared with 723 points in the prior week. The decline in volatility, though, got arrested and a sectoral shift was clearly visible. After a stable move on the higher side, the headline Nifty index ended the week with a net gain of 456 points, or 3.72 per cent on a weekly basis.
We are two weeks into this month and Nifty has already gained 1,077 points, or 9.26 per cent, this month. Also, the index is testing the a two-year-long trend line pattern resistance, which makes the current move and the previous week’s level crucially important to watch. Volatility, which came off 17.19% from the previous week, remained steady, but India VIX still came off 3.88% on a weekly basis to end at 19.70. Nifty is now in the unchartered territory. As it meets a strong pattern resistance, it would be important to watch its behaviour against the trend line.
Nifty shall have a short trading session on Saturday on account of Mahurat Trading. Such sessions are usually quiet with participants placing only token trades.
The 12,850 and 13,000 levels are likely to act as key resistance for Nifty in the week ahead, while support will come in lower at 12,610 and 12,400 levels. There are possibilities of the trading range widening this week with some rise in overall volatility.
The weekly RSI stood at 67.99. It has marked a new 14-period high, which is a bullish signal and does not show any divergence against the price. The weekly MACD remains bullish, as it stays above the signal line.
A white candle occurred on the chart. This showed consensus among the participants with regard to the market’s directional bias.
Pattern analysis showed Nifty has gained more than what it had lost in the pandemic meltdown. It now trades at a lifetime high. At the same time, it has tested the two-year-long important pattern trend line resistance on the weekly chart. This makes it crucial to watch the index’s price action against this trend line.
If the market in general takes some breather over the coming week, that should not come as surprise as Nifty has run up too fast over the past few days, much ahead of the curve. For the market to sustain these gains, it would be healthy if it consolidates at current level. Over the past several days, some sharp sectoral preferences were seen, which point at a preference for defensive bets in the market. We recommend adopting a highly stock and sector specific approach rather than chasing the momentum blindly.
In our look at the 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) shows the absence of sectors in the leading quadrant. The Nifty Services sector index is the only one as of now in the leading quadrant. It is also rotating favorably in the north-easterly direction. The IT sector is in the leading quadrant as well, but it has pared relative momentum over the past week. However, these two groups are likely to post relative outperformance over the broader market.
Nifty Metal, Media and Pharma and Auto indices are in the weakening quadrant along with the broader Nifty Midcap100 index.
Consumption, Commodities, Energy, FMCG, Infra, PSE and PSU Bank indices are now in the lagging quadrant. The weakest among these is the PSU Bank index, which is rotating in the south-westerly direction, while staying in the lagging quadrant. The FMCG, Consumption and Infrastructure indices are attempting to consolidate their performance. The Nifty Realty index appears to be rolling over following a weak rotation inside the improving quadrant. Nifty Bank Index stays strong and is seen advancing towards the leading quadrant. Currently, it is placed inside the improving quadrant. Giving Nifty Bank company is Nifty Financial Services Index, which also appears to be placed firmly inside the improving quadrant.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against 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)