Unlike the previous week, this time Nifty did not oscillate in either direction. Instead, it just remained unilaterally bearish for the major part of the week. The index ended up violating important support, and this has taken it back inside the large trading range with the broader technicals remaining weak.
While not showing any major strength on the larger time frame charts, the headline index closed with a net loss of 382.50 points or 2.31% on a weekly basis.
From a technical standpoint, Friday’s session inflicted some damage on the technical structure of the Nifty. On the daily timeframe, the index has again slipped below the short-term 20-DMA which presently stands at 16,315. Apart from this, the Nifty also trades below all three key moving averages on the daily time frame charts.
Coming to the weekly technical structure, Nifty has failed to move past the 20-week MA which presently stands at 16,902. With the 50-week MA at 17,063, the zone of 16,900-17,065 becomes a very stiff resistance area for the index. The most immediate resistance point for Nifty stays at 16,400 as the index has slipped below this level.
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For the coming week, the markets may find resistance at 16,400 and 16,665 levels. On the lower side, supports exist at 16,000 and 15,840 levels.
The weekly RSI is 42.85. It remains neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below the signal line.
On charts, a black-bodied candle has appeared. This showed a bearish directional consensus of the market participants. Apart from this, no other formations were seen.
The pattern analysis on the weekly charts shows that 50-week MA and 20-week MA are in close proximity to each other at 17,063 and 16,902. This makes the zone of 16,900-17,065 a strong resistance area for the index.
Besides this, the most recent move has dragged Nifty back inside the 1,000-point trading range which has 15,700 as its pattern support area. This means that as long as Nifty stays between 15,700-17,000, it will not have any definite directional bias and we will see the markets oscillate back and forth in this wide trading range.
The derivatives data shows that long unwinding has happened in the markets. Nifty current month futures have shed over 2.59 lakh shares or 2.22% in net Open Interest. The decline in OI has come with the decline in Nifty, and this hints at long unwinding at higher levels.
Importantly, this may not lead to any immediate fall in the markets, but there are possibilities that all up moves may get sold into. It is strongly recommended to keep leveraged exposures curtailed. It would be rewarding to stay exposed to pockets showing strong or improving relative strength.
In the coming week, sectors like FMCG, consumption, and select financials may post good performance.
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 some mixed setup. While few of the defensive pockets are showing improvement in the relative strength and momentum, a few other high beta groups are also showing possibilities of resilient performance from them.
Metal and commodity indices are inside the weakening , while the media index is seen languishing inside the lagging quadrant. These groups are likely to post relative underperformance against the broader markets. Nifty Pharma index has also rolled inside the weakening quadrant.
Nifty FMCG, Consumption, Auto, Infrastructure, PSE, and Energy groups are inside the leading quadrant. They are expected to put up relative outperformance against the broader Nifty500 index.
Nifty Services sector, Realty and IT indices are also seen languishing inside the lagging quadrant. Some isolated stock-specific performance may be seen but overall relative underperformance may continue to persist.
While Nifty Financial Services index stays in the improving quadrant, Bank Nifty has rolled inside the leading quadrant.
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. (Nifty 500 Index), which represents over 95% of the free float market cap of all the stocks listed.
Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected]