The Indian equity market extended its up move this week and ended with gains. The market displayed internal strength and looks forward to defending its recent technical pullback seen over the past several days.
The week went by saw the index oscillating in a 561-point range. While Nifty50 stayed above key levels on the daily charts, it went past important levels on the weekly charts. The headline index finally ended with a net gain of 459 points (+2.64%) on a weekly basis. Volatility increased, INDIA VIX, climbed by 8.51 per cent for the week to 17.60.
Over the past several days, the strike of 18,000 continues to see a maximum accumulation of the Call OI. This level will continue to act as a resistance unless taken out convincingly. On the other hand, the highest PUT OI stands at 17,500, and this defines the likely trading range over the coming week.
Nifty has moved past and crossed above the 20-Week MA which presently stands at 17,553. There are chances that the market may consolidate in general with an inherently bullish undertone.
The coming week is likely to see the levels of 18,000 and 18,080 acting as resistance points. The supports come in at 17,710 and 17,565 levels. There are continued chances of the market witnessing ranged oscillations over the coming days.
The weekly RSI is 59.96 and stays neutral. It does not show any divergence against the price. The weekly MACD is bullish and stays above the signal line.
On the tech chart, a strong white candle has emerged which shows the directional consensus of the market participants through the week.
Following a formation of a candle with a long lower shadow, Nifty found a base for itself as it defended the crucial 16,650-16,700 zone. In the process, the index also took support at the lower Bollinger band. After this, a strong technical pullback followed that took the markets higher.
As we head into the new week, there are higher chances that the market consolidates within a broad but defined range. Any runway up move is unlikely unless Nifty moves past the 18,000 levels convincingly.
On the other hand, even downsides are likely to remain ranged and limited. Some consolidation, if at all it happens, should not come as a surprise as it would make the recent 1,500-point technical pullback healthier and more sustainable.
One should avoid shorts and use all opportunities to make select purchases while protecting profits at higher levels.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.
The analysis of Relative Rotation Graphs (RRG) shows there is no material change in the sectoral setup as compared to what was seen in the previous week. Nifty PSU Bank, Media, and Auto groups are inside the leading quadrant. They appear to be taking a breather and paring on their relative momentum front.
The IT Index has moved inside the leading quadrant again. Along with the above groups, it may now start relatively outperforming the broader Nifty500 index. The Nifty Energy index has slipped inside the weakening quadrant. The Realty index, Midcap 100 index, Infrastructure and Services sector indices are also inside the weakening quadrant. However, the tails do not show any major directional change this week over the previous week.
Nifty Financial Services continues to languish in the lagging quadrant along with Bank Nifty despite strong moves in the previous week. Nifty FMCG, Consumption, and Commodities groups are inside the lagging quadrant as well but they are improving their relative momentum against the broader markets.
The Metals and Pharma indexes are inside the improving quadrant. They are likely to continue to relatively outperform the broader markets.
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 Markets) and should not be used directly as buy or sell signals.
Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara.