Market Overview
The markets continued to stay tentative over the past five days, trading with a weak undertone as the Nifty digested the reaction to the US election outcome. Although there were two days of a strong technical rebound, this was subsequently sold into, which kept the Nifty in a broadly defined range. The trading range was wider than usual, with the Nifty oscillating in a 721-point range. Volatility cooled off, and the India VIX declined by 6.95% to 14.47 through the week. Following this ranged trade with a weak underlying bias, the headline index closed with a net weekly loss of 156.15 points (-0.64%).
Technical Analysis
From a technical perspective, the markets are not out of the woods yet. The Nifty has violated the 20-week moving average, which currently stands at 24,775. This level also coincides with an extended trendline that initially acted as support but now acts as resistance. Below this point, there are several other resistance levels as well. The 100-day moving average is placed at 24,709, and the short-term 20-day moving average is placed at 24,486. Combined, these have created a 250-point resistance zone between 24,500-24,750 levels. This means that all technical rebounds will start facing turbulence as soon as the index approaches this zone. The resistance levels have been dragged lower. On the downside, major pattern support exists at 23,800; if this is violated, the markets will become weaker. This keeps the Nifty in a broad but well-defined trading zone.
ETMarkets.comOutlook for the Coming Week
Monday is likely to see a quiet start to the week. The levels of 24300 and 24485 are likely to act as probable resistance points for the Nifty, while support comes in at 23960 and 23800 levels. The trading range is likely to stay wider than usual.
The weekly RSI stands at 49.50, remaining neutral and showing no divergence against the price. The weekly MACD is bearish and stays below its signal line. Pattern analysis of the weekly charts suggests that the Nifty remains in a corrective downward trajectory. The recent downward move has also dragged the resistance levels lower for the Index. Presently, the markets have multiple resistance levels nestled in the zone of 24500-24750. With immediate pattern support existing at 23800, the Nifty remains in this wide but well-defined trading zone.
All in all, the markets are likely to see intermittent technical rebounds over the coming days. However, it is important to be mindful that a sustained rally is unlikely as long as the Nifty does not move past the 24500-24750 zone. Until this zone is surpassed, the Nifty is unlikely to see any runaway rally. Therefore, during any technical rebounds, it is crucial to mindfully protect gains at higher levels. Rather than mindlessly chasing such rebounds, it is necessary to vigilantly guard positions at higher levels, as the markets remain susceptible to selling pressure at those levels. A cautious outlook is advised for the coming week.
ETMarkets.com(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.)
Relative Rotation Graphs (RRG) Analysis
Relative Rotation Graphs (RRG) show that the Financial Services index has rolled inside the leading quadrant, along with the Nifty IT, Services Sector, and Pharma indices. These groups are likely to continue to relatively outperform the broader Nifty 500 Index.
The Nifty Consumption index has rolled inside the weakening quadrant. The FMCG and the MidCap 100 indices are also inside the weakening quadrant and may continue giving up on their relative performance.
The Nifty Auto, Commodities, Energy, Media, Infrastructure, Realty, and PSE indices are inside the lagging quadrant. These groups may relatively underperform the broader markets.
The PSU Bank Index has rolled inside the improving quadrant, along with the Nifty Metal and the Nifty Bank Index. They may continue bettering their relative performance against the broader markets.
(Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the above Chart, they 1 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)
