Looking at the market in the usual way through the domestic setup would be meaningless. The stocks rally we saw over the past five days was inherited from the global trade setup and the buoyancy fueled by US elections. Also, there was a slight difference between the technical setups of Indian and US markets. Before the current rally, Dow had tested its 200-DMA while the S&P500 bounced off its 100-DMA. Indian equity benchmark Nifty50 has been relatively strong and bounced back from its 50-DMA, not going closer to the other two DMAs.
This shows that the Indian market has run up little more than the US market, as it has additionally benefitted from the weakness in the US dollar, as it led to more liquidity infusion in emerging markets. Going ahead, we expect this rally to halt some bit and there are chances that the market may consolidate a bit and stay healthy.
Market volatility dropped significantly, with INDIA VIX coming off some 17.19 per cent to 20.50 level on a weekly basis. In the coming week, Nifty will face resistance at 12,350 and 12500 levels, while support will come at 12,150 and 11,950 levels. Trading is expected to stay wider in the coming week.
The weekly RSI stood at 64.09 level, as it showed a mild bearish divergence against price. The weekly MACD remained bullish and traded above the signal line. The formation of a large white candle signalled a unilateral bounce.
Nifty has completed its V-shaped recovery and regained everything it had lost during the pandemic meltdown. This is, by all means, a phenomenal show and, it’s about time we continue to exercise caution while chasing every bounce.
The sectoral preference towards the traditionally defensive stocks from consumption, FMCG and IT sectors is evident. Even if the IT stocks consolidate at current levels, they are expected to catch up once the dollar weakness eases. We advise investors to turn stock-specific and avoid chasing the momentum blindly.
In our look at the 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.
A review of the Relative Rotation Graphs (RRG) showed IT is the only sector placed in the leading quadrant and does not appear to be giving up on its relative momentum.
The Midcap100 Index has rolled over into the weakening quadrant showing a likely end to its relative outperformance. Nifty Auto, Media, Metal and Pharma indices remain in the weakening quadrant. The pharma index appears to be trying to improve its relative momentum.
The Infrastructure, PSE, PSU Bank, Commodities and Energy indices continue to languish in the lagging quadrant. The FMCG and the Consumption groups are also in the lagging quadrant, but they appear to be sharply improving their relative momentum and are in the process of bottoming out.
Nifty Financial Services, Bank Nifty, and Service Sector indices are in the improving quadrant and remain steady, except for the realty group, which has pared momentum sharply. We will look at these sectors along with IT, FMCG and Consumption packs offering stock-specific relative outperformance in the coming days.
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.