Markets

Dalal Street Week Ahead: Nifty to stay volatile; upside capped

In the note for the previous week, we had expressed possibility of the equity market being pushed into some consolidation post finding resistance at the higher levels.

The week that has gone by remained quite volatile. After volatile movements on either side, the benchmark Nifty50 finally ended the week with a net gain of 67.60 points or 0.66 per cent. This week's close was aided with a sharp short covering aided by the outcome of exit polls that showed BJP retaining power in Gujarat.

Going into trade on Monday, we are likely to see a positive but volatile start to the week. In all likelihood, we might see some positive opening. Just as the Gujarat Election results or trends start trickling in on Monday, we will see the markets reacting in a volatile manner. However, if nothing unexpected comes out of it, we will see the market inching higher towards its previous high.

However, in the same breath, we do not see it posting meaningfully fresh highs in any case.

The levels of 10,410 and 10,490 will play out as immediate resistance levels. The levels of 10,150 and 10,090 will act as immediate supports.

The Relative Strength Index (RSI) on the weekly charts is 61.2382 and it remains neutral showing no divergence to the price. The weekly MACD stays bearish while trading below its signal line. A candle with a long lower shadow occurred on the weekly charts. This may mean bullish reversal but it requires confirmation on the next candle.

All in all, we might see some positive start, but also expect volatility to remain ingrained in the system.

Having said this, if we look at the pattern analysis, we still expect the levels of 10,490 resist at higher levels. Also, the lead indicators like RSI remained in a lower top formation, and are yet to break out from a range. We expect the short covering that took place in the week that has gone by to be effectively replaced with fresh buying. Until this happens, while selective sector specific purchases may be made, bulk of the up moves should be utilised to book and protect profits.

A study of Relative Rotation Graphs – RRG show that along with the broader market, the PSU banks, media and infra stocks will continue to relatively outperform the nifty accompanied by the midcaps.

We will see metals continue to lose overall momentum along with pharma. Also joining the likely relative outperformers will be the FMCG and Nifty Junior Pack. Along with pharma, not meaningful upmove is likely in auto and financial services pack on weekly bias. IT is expected to consolidate with a positive bias.

Important Note: RRG charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY Index and should not be used directly as buy or sell signals.

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