Dalal Street week ahead: Trendsetting triggers ahead; banks favourably poised

After a healthy consolidation near the 12,000 mark over the past couple of weeks, Nifty50 has attempted to break above the year-long secondary trend it was in by ending the week with gains. Throughout the week, Nifty pushed hard to breach the double-top resistance on the shorter-term charts, as it continued to consolidate fiercely.

The last trading day of the week saw some paring of gains ahead of expected weak GDP data. Despite this, the headline index ended the week with net gains of 141 points, or 1.19 per cent. India VIX has cooled off further by 6.56 per cent to 13.90.

The coming week is set to be crucial for the market, and it would decide its trajectory for the near term. Nifty has not broken the double-top resistance on the short-term charts, which stand at 12,103. However, on the weekly charts, the index is seen preparing the ground for a breakout as the RSI has broken out after penetrating a falling trend line joining its lower tops.

In the process, the RSI has also resolved a bearish divergence. On the other side, the market will have to digest weak GDP numbers, which were more or less discounted during the day.

The market is expected to see some rise in volatility in the coming week as Nifty attempts to break above its crucial resistance levels, and also digest the weak GDP numbers. The 12,160 and 12,385 levels will act as immediate resistance points while supports will come in at 11,900 and 11,800 levels. The trading zone is expected to stay wider than usual for the market.

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The Relative Strength Index (RSI) on the weekly chart stood at 64.21; it has marked a fresh 14-period high, which is a bullish signal. The RSI also appears to be resolving the continued bearish divergence in favour of some potential upside as it has penetrated above the falling trend line that joined its lower tops.

weekly outlook

The weekly MACD is bullish and trades above its signal line. Pattern analysis of the weekly charts showed that the primary uptrend, which continued for over three years, got interrupted at the end of 2018. Nifty is currently in a secondary trend for over a year. The index appears to be attempting to break out of this trend. It would be important to see if this acts as a continuation pattern over the coming weeks.

We might see some initial reactions to the weak GDP data, and this may see some increase in the volatility over the coming days. That said, there are higher chances that Nifty would attempt once again to move past the crucial 12,103 level and close above that.

All in all, ancillary readings point towards likely up-move over the coming days. As of now, Nifty is yet to give a clean breakout, and till the time this happens, investor can keep chasing the momentum carefully. Shorts should be avoided. Until and unless the breakout attempt fails, all downside moves should be used to make modest purchases. A cautiously positive approach is advised for the day.

In our look at Relative Rotation Graphs, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95 per cent of the free float market cap of all the listed stocks.

Relative Rotation Graph

Relative Rotation Graph-Indian Sector

The review of Relative Rotation Graphs (RRG) shows strong rotation in Nifty Private Banks, PSU Banks, Bank Nifty and Financial Services Indices towards the leading quadrant. The Energy Index also stays in the leading quadrant, and these groups collectively are likely to relatively outperform the broader market in the short term. The commodities space also shows some strong momentum and may see stock-specific performance over the coming weeks.

On the other side, the FMCG and Consumption baskets have topped out and are expected to lose momentum going ahead as they have moved into the weakening quadrant. The IT group, too, is expected to continue to underperform the broader markets. The Infrastructure space also may underperform as it is witnessing the rotation towards the lagging quadrant.

Important Note: RRGTM charts show you 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 milan.vaishnav@equityresearch.asia)



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