Dalal Street week ahead: Market done with exuberance; Nifty upside capped
In yet another eventful week, the Indian equity market continued to digest the outcome of the general elections fully and strongly reacting to the portfolio allocation to the new set of Cabinet ministers.
After moving in a 420-point trading range, and marking incremental highs on a closing basis, headline index Nifty ended with net gains of 78.70 points or 0.66 per cent on a weekly basis.
The market ended the month reacting to all possible events. The difference between the high and the low was 932.85 points in May, and this speaks of the amount of volatility that Nifty saw during the month. Despite such a broad trading range, Nifty ended the month with net gains of just 174.65 points, or 1.49 per cent on a monthly basis.
As we approach the new trading week, it would be essential to note that we have reached a point where the market is done with the election theme and will now react to broader technical setup, macroeconomic environment and other global factors.
The market is likely to see a tepid start to the week, and the 12,040 level is likely to act as a stiff resistance for Nifty. Beyond this, the index will enter an unchartered territory and may find resistance at 12,200. On the lower side, support should come in at 11,800 and 11,610 levels.
The weekly RSI stands at 64.4315 and continues to show bearish divergence against the price. The weekly MACD remains bullish as it trades above its signal line, however, it is flattening its trajectory.
Pattern analysis shows Nifty has halted its up move after a half-hearted attempt to break out at a double top resistance point. It also shows the index is facing resistance at the lower trend line of the upward channel which it had breached earlier in October 2018.
The Bollinger band shows the upsides, if at all any, may be limited. The recent price action around the bands compared with the movement of the Relative Strength Index (RSI) suggests a possible selling (short) opportunity may exist. Prices peaked recently above the upper band. This action was followed by a selloff and then another peak emerged inside the band. The RSI has diverged from this price action with successive lower peaks, suggesting weaknessahead.
We expect some volatility to resurface again in the coming week. The market faces technical headwinds at higher levels. We strongly recommend not using the dips blindly to make aggressive purchases. A highly selective and stock-specific approach is advised for the coming week.
In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent of free-float market-cap of all the stocks listed.