The trading range over the past five days was narrower than the week before this one. The headline index oscillated in a range of 338 points, but saw some volatility resurface. After a measured move and some extended gains, Nifty ended the week with a net gain of 255 points, or 1.93 per cent, on a weekly basis.
Looking at the shorter timeframe charts, Nifty looks highly overstretched and overextended and is prone to some profit taking at current level.
On the weekly timeframe chart, the index does not look overstretched, and this may lead to some rangebound consolidation. The ongoing rally continues to be fuelled by a weak US dollar, which has resulted in strong flows from FIIs. That calls for keeping a close eye on the Dollar Index, as it looks highly oversold and just a notch away from its strong multi-year support.
Volatility resurfaced a bit as the India VIX climbed 4.23% to 18.79 on a weekly note.
The market may see a measured move in the coming week, and has limited upsides. Some consolidation cannot be ruled out. The 13,600 and 13,665 levels may act as key resistance points, while supports will come in much lower at 13,380 and 13,210 levels. Any correction, if at all it happens, will widen the trading range for the week.
The weekly RSI stood at 74.05. It has made a new 14-period high, and this is bullish signal. The RSI looks overbought, but remains neutral and does not show any divergence against the price. The weekly MACD remains bullish and is above the signal line.
A white body emerged on the candle. This implies a directional consensus among the market participants and implies an established trend unless reversed.
Pattern analysis showed Nifty has gained much more than what it had lost during the pandemic meltdown. In the process, the index has also crossed and moved past the 2-year-long rising trend line, which may now act as a strong pattern resistance. This has helped Nifty shift its support levels higher.
Going into the new week, investors should have strong preference for defensives liked FMCG, pharma, consumption and the PSUs that are seeing strong sectoral rotation. If the Dollar Index pulls up a bit, which may lead to rupee depreciation, it may play out tactically well for select IT stocks. We reiterate approaching the market with utmost caution and avoiding excessive large leveraged exposures, as Nifty remains prone to some corrective moves.
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 listed stocks.
A review of the Relative Rotation Graphs (RRG) showed Nifty Bank, Services Sector, Realty and Financial Services indices are placed in the leading quadrant. Nifty Metal has rotated strongly back inside the leading quadrant. These groups are likely to relatively outperform the broader Nifty500 Index.
Nifty Pharma and Media Indices languish in the weakening quadrant, though they have flattened themselves as they attempt to consolidate. However, Nifty Infra, Energy, FMCG and Consumption indices also in the lagging quadrant, and appear to be improving sharply on their relative momentum and are seen moving towards the improving quadrant.
Nifty PSE Index has rolled over inside the improving quadrant, signaling a likely end to the relative underperformance. Nifty PSU Bank Index continues to advance inside the improving quadrant, maintaining its strong north-easterly rotation.
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 [email protected])