In our previous weekly note, we had talked about the possibility of the Nifty50 staying within a specified range, and not seeing any runaway rally. In line with that analysis, the index oscillated in a defined range and ended the week with a modest gain of 71.45 points, or 0.67 per cent on a week-to-week basis.
The week that went by saw the index stay within the falling trend line, which has defined a probable lower top for the market.
In the coming week, Nifty will get over its reactions to RBIs Money Policy review that saw a hike in repo rate by 25 bps, with the reverse repo rate adjusting to 6 per cent. In the coming week, it remains to be seen how Nifty manages to move past its falling trend line, which will define the lower top for the market.
The 10,820 and 10,850 levels will now assume critical importance, and one needs to watch out for them in the coming week.
The 10,850 and 10,975 levels should act as immediate resistance areas for Nifty in the coming week, while supports should come in lower at 10,550 and 10,510 levels.
The Relative Strength Index or RSI stood at 59.5185 on the weekly chart. It remains neutral showing no divergence from price. It is forming a pattern that conforms with Niftys price pattern as it forms lower tops. The weekly MACD remains bullish even as it trades above the signal line. On the candles, a candle with a long lower shadow has emerged. It is significant as the same has occurred near the pattern area resistance of a falling trend line joining the lower tops. It lends credibility to the resistance area mentioned above.
Overall, for any meaningful uptrend to resume, Nifty will have to move past the 10,820-10,850 area and move out of the falling trend line, which is forming lower tops for the market. Until that happens, the defined zone between 10,820 and 10,850 will continue to pose resistance to the index. F&O data suggests more consolidation rather than any major downside due the shorts that still exist in the system. We recommend buying the dips while remaining vigilant at higher levels until the Nifty moves past the 10,850 mark. Market movement is likely to be highly stock and sector-specific in nature in the coming week.
A study of Relative Rotation Graphs shows PSU banks have significantly improved its relative momentum and will be seen attempting to outperform the general market. They are very likely to be accompanied by the BankNifty pack as well. Besides this, FMCG and financial services are likely to relatively outperform the broader market and provide leadership in the event of any major upward move. Broader indices like CNX100, CNX200, CNX500, Nifty Next 50 and MidCaps are still showing deterioration on the momentum front and they may prevent any runaway rally in the broader market.
The auto pack, too, has lost much of the momentum and is not expected to put up any distinctive show. Stock-specific outperformance can be expected from the metals, realty and pharma packs.
Important Note: RRGTM 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.
(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])