US bond yields that have been haunting the markets for some time stabilized some bit and this helped the stem further deterioration in market sentiment.
Nifty formed lower tops and bottoms compared with the previous week, indicating the corrective undercurrent of the market. Bank stocks and midcaps underperformed, as they lost more than frontline Nifty. The headline index ended with a net loss of 236 points or 1.61 per cent on a weekly basis.
We have a three-day truncated week ahead, with Monday and Friday being trading holidays on account of Holi and Good Friday, respectively. Given the short trading week, the market is expected to broadly stay in a defined range with limited move on the either side. Volatility changed little during the week; INDIA VIX rose 3.31 per cent to 20.65 on a weekly note. Though US bond yields will be watched closely, they are unlikely to cause any trouble at least this week.
A strengthening US dollar is something that needs to be watched closely. In any case, it will be important for Nifty to defend the previous week’s low of 14,264.
In the coming week, Nifty will be adjusting itself to global trade setup on Tuesday, as it will be opening after Monday’s trading holiday. Broadly speaking, the 14,665 and 14,800 levels will act as key resistance points, while supports will come in at 14,250 and 14,110 levels.
The range, strictly from a technical perspective, remains a bit wider than usual given the current chart structure. The weekly RSI stands at 60.42; it remains neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below its Signal Line. Apart from a Black Body that emerged on the candle, no other formations were noticed on the charts.
Pattern analysis showed the market is simply retracing following a very steep deviation from its mean. It continues to be in a primary uptrend, with the retracement bringing it back near the mean. The faster 20-week moving average, which stands at 14,122 level currently, will be an important support for Nifty to watch out in the coming days.
With a major pattern support lying near the 14,000 level on the daily chart, the 14,000-14,120 zone will become a major support for Nifty in the coming weeks.
We expect the market to stay highly stock-specific in nature in the coming days. While stocks may show some defensive bias, it would be difficult to have any sector-led leadership. The market movement will largely be spread out and remains more stock-specific in nature, than sector-specific. We reiterate adopting a cautious view on the market and keeping excessive leveraged exposures in check as long as the market remains in a broader consolidation phase.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95 per cent of free-float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) showed the PSU Bank and Auto indices along with the Smallcap index continue to lose their relative momentum despite remaining in the leading quadrant. Nifty Commodities and the Midcap100 Indices along with Nifty Metal Index remain strong and may show up stock-specific outperformance against the broader market. Nifty Metal Index has rolled over inside the leading quadrant from the weakening quadrant.
Nifty Services Sector, Bank, Realty and Financial Services indices remain inside the weakening quadrant, steadily paring their relative momentum against the broader Nifty500 Index. No major relative outperformance can be expected from these groups.
The Nifty IT Index has crossed over to the lagging quadrant. It has company of Nifty FMCG, Media and Pharma Indices, which also continue to languish inside the lagging quadrant. These groups are likely to collectively underperform the broader market on a relative basis.
The Nifty FMCG Index is also inside the lagging quadrant. However, it is expected to sharply improve its relative momentum to move towards the improving quadrant. The index is in the process of completing the bottoming out process. Nifty Energy Index is well-placed inside the improving quadrant and appears to be steadily 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 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)