Nifty moved in a wide 700-point range, and the weekly time-frame charts continue to signal broader consolidation. While the index is still away from key levels on the higher time-frame charts, it has ended up violating a few important levels on the daily chart. After suffering a negative close on four out of the past five sessions, the headline index saw a 400-point rebound from the lows of the previous session and ended with a net loss of 286 points, or 1.91 per cent, for the week.
The 10-year US bond yields, which have already moved past the 1.70% mark, will continue to haunt equity markets in the coming days and weeks. The Indian market, in particular, nearly became oversold on the short-term charts and saw a strong technical rebound on the last trading day of the week. This technical rebound may well get extended as we enter the expiry week of the current derivative series.
That said, even if we look at the domestic charts in isolation, it clearly shows Nifty has slipped into a broad-range consolidation. It has also dragged its supports lower to the 15,000-15,100 zone for the near term.
Another correlation that stays disturbed is the usually inverse relationship one sees between the volatility index, INDIA VIX, and Nifty. Along with the market, INDIA VIX also came off some 7.92 per cent during the week to 19.99. In the week before this one, INDIA VIX had come off 15.07%. This inverse correlation may get corrected soon; and we may see the index extend the technical pullback to a limited extent and along with a rise in volatility in the coming days.
The 14,865 and 15,000 levels are likely to act as resistance points for Nifty in the week ahead, while supports will come in lower at 14,500 and 14,380 levels.
The weekly RSI stood at 63.86 level. It remains neutral and does not show any divergence against price. The weekly MACD has seen a negative crossover. It is now bearish and has fallen below the signal line. A black body with a long lower shadow has emerged. The bottom of this candle can be relied upon as a temporary support for Nifty.
Pattern analysis indicates that Nifty has been trapped in a broad rangebound consolidation. Although it has tested and violated a few key levels on the daily chart, it is still some 730-odd points away from the faster 20-week moving average, which currently stands at 14,010 level and tracks the rising trend line on the chart. The Bollinger Bands, which got wider than usual, are beginning to contract. This indicates that Nifty may stay in a broad range for a while and may not show any runaway move.
The defensive play has become evident in the market. Select auto stocks are showing relative strength. Apart from that, energy, FMCG, consumption and select pharma stocks have started to show an improvement in the relative performance.
This trend is likely to work out well in the coming weeks too. Nifty may very well extend the technical rebound, but that is likely to remain limited in its extent. We recommend avoiding shorts, staying highly stock specific and keeping exposures at modest levels throughout the week ahead.
In our look at the Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 index), which represents over 95% of the free float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) shows Nifty Infrastructure, PSE, Commodities, Auto and Midcap100 Indices are placed in the leading quadrant and appear to be maintaining their relative momentum. These groups are likely to relatively outperform the broader market. The Nifty PSU Banks and the Smallcap Indices are also moving inside the leading quadrant. However, they are seen paring their relative momentum.
The Nifty Financial Services, IT, Realty and Services Sector Indices and Bank Nifty are inside the weakening quadrant and appear to be rotating in the south-west direction.
Nifty Metal Index is moving in the weakening quadrant, but is seen rolling back towards the leading quadrant.
Nifty media, pharma and consumption indices continue to languish in the lagging quadrant. They are likely to relatively underperform the broader markets.
The FMCG Index has shown a sharp improvement in relative momentum; it appears to have changed its trajectory while being placed inside the lagging quadrant. This index, along with the energy index, which is placed inside the improving quadrant, is likely to put up a resilient performance in the coming days and outperform the broader Nifty500 index on a stock-specific basis.
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.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])