The week gone by saw Nifty trade on the expected lines, as the 12,000-12,050 zone continued to pose resistance to the index on the upside. The market spent the week consolidating at higher levels while demonstrating weakness near the critical resistance zone. Nifty headed nowhere over the past couple of days and formed lower tops and bottoms on the weekly bar charts. After oscillating back and forth in a defined range, Nifty ended flat with a negligible loss of 12.70 points, or 0.11 per cent, on a weekly basis.

The coming week will throw up a few crucial technical points to watch. Though Nifty looks healthy, the up-move throws up a few concerns as the bearish divergence continues to persist and is yet to get resolved. Also, Nifty continues to find strong resistance in the 12,000-12,050 area while exhibiting signs of exhaustion near this zone.

Volatility index INDIA VIX has settled near the lower range, and is currently at 15.03, down 5.20 per cent over the previous week. Nifty is likely to see a flat start to the coming week and may even show a few more attempts to move higher. However, the 12,050 and 12,150 levels will act as strong resistance, while supports will come in lower at 11,750 and 11,650 levels. In the event of any corrective move, the trading range for the week is likely to remain wider than usual.

Table 1

The weekly RSI stands at 61.50; it continues to remain within a formation and shows bearish divergence against price. While Nifty is not marking any lower highs, the RSI is seen making lower tops. This formation needs to be resolved for any sustainable up-move going ahead. The weekly MACD remains bullish, as it trades above the signal line.

In the previous week, a classic Shooting Star emerged. It was a perfect Shooting Star with the upper shadow long enough to be nearly double the size of its real body.

During the week gone by, this Shooting Star is followed by the formation of a Doji candle. This shows exhaustion at higher levels and increases the possibility of the market taking a breather at current level.

Going by pattern analysis, it is evident that Nifty is currently in good shape and has made incremental highs over the past couple of months. However, the strength in the move is missing, and a bearish divergence has been observed on the RSI, which is a lead indicator. The RSI is seen making lower tops and it remains trapped in a formation.

A sustainable up-move will occur only if Nifty moves past the 12,000-12,050 area convincingly. To add to this, to make any up-move sustainable at higher levels, the bearish divergence on the RSI also needs to get corrected. Unless these conditions are satisfied, the market will continue to face stiff overhead resistance and stay vulnerable to profit taking at higher levels. In the event of any corrective move, volatility is likely to increase.

We recommend continuing to follow the uptrend, if there is any, prudently and cautiously while protecting profits at higher levels.

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.

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13

A review of Relative Rotation Graphs (RRG) showed the coming week is likely to see relative outperformance from the auto index, as it has strongly crawled into the leading quadrant while maintaining its momentum. Along with the auto index, the energy pack is also placed in the leading quadrant though mildly faltering on its momentum. The FMCG and the consumption indices are also in the leading quadrant. Looking at the sharpness of its loss of momentum, they appear to be in the process of topping out.

Bank Nifty, while sharply improving on its momentum, crawled into the improving quadrant. This shows likely resilience to any significant downsides going forward and some relative outperformance against the broader market. Financial services, metals, PSU banks and the realty groups appear to be making attempts to stabilise going ahead. Isolated and stock-specific outperformance cannot be ruled out from these groups.

Apart from these, pharma, media and IT groups, when benchmarked against the broader markets, may end up with relative underperformance.

Important Note: RRGTM charts show you 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 milan.vaishnav@equityresearch.asia)





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