The trading range remained modestly higher; the Nifty oscillated in a 464.20 points range during these four trading sessions before ending toward their high point. The volatility cooled off a bit; the India VIX retraced 6.08% to 14.40 through the week. The headline index closed with a weekly gain of 173.65 points (+0.71%).
The markets are still within a range; however, they are currently trading close to the upper end of the defined trading range. Going by the derivatives data, the strikes between 24,500 and 24,800 are seeing the accumulation of significant Call OI. Besides this, any move higher from the current levels will see the Nifty testing the extended trendline pattern resistance; this is pattern support that the Nifty violated on its way down.
This support has now turned resistance and it is expected to resist any up move of Nifty from the current levels. On the lower side, the 50-DMA is placed at 24,407. With the maximum PUT OI seen at 24,000 strikes, the zone of 24,000-24,100 is now the most immediate and important support zone for the markets.
Monday is likely to see a stable start to the week; the levels of 24,700 and 24,850 are likely to act as probable resistance points. The supports come in lower at 24,250 and 24,050 levels.The weekly RSI stands at 69.71; it stays neutral and does not show any divergence against the price. The weekly MACD is bullish; however, the narrowing Histogram shows decelerating momentum while the Index is moving higher.The pattern analysis of the weekly chart shows that the lifetime high of 25,078 continues to remain an intermediate top for the markets. No trending move is likely unless this level is taken out convincingly. The most important point that catches the attention is the market breadth. The cumulative AD line of the broader Nifty 500 index is seen negatively diverging. This would imply that fewer and fewer stocks are participating in the up move.
All in all, the markets may stay stable over the coming week; however, even if the up move extends itself, the markets would continue to remain susceptible to corrective retracements from higher levels. More emphasis is now required on guarding profits at higher levels.
While keeping the fresh purchases highly stock-specific, it would be prudent to stay focused on stocks having strong and improving relative strength.
Leveraged positions must be kept curtailed and in prudent quantum. A cautious outlook is advised for the coming week.
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.
ETMarkets.comRelative Rotation Graphs (RRG) do not show any material change in the sectoral setup. Lack of leadership remains a concern with only the Nifty Midcap 100 index inside the leading quadrant.
The Nifty PSE and Realty Index are inside the weakening quadrant. Besides this, the consumption and auto indices are also inside the weakening quadrant. The PSE and the consumption indices are seen improving on their relative momentum.
ETMarkets.comThe Nifty Bank Index has rolled back inside the lagging quadrant. It is set to relatively underperform the broader markets. The Nifty Metal Index has rolled inside the lagging quadrant. The Nifty Commodities, Energy, PSU Banks, and the Infrastructure indices are also inside the lagging quadrant. A few among these are seen improving on their relative momentum against the broader markets.
The Nifty Services Sector, Pharma, Media, Financial Services, FMCG, and Media indices are inside the improving quadrant. They are set to continue to improve their relative performance over the coming week.
(Important Note: RRGTM charts show the relative strength and momentum of 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.)
(The author, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae.)
