The benchmark Nifty50 had spent the previous week consolidating in a capped range, but utilised this week extending its gains. The index ended the week on a robust note, scaling new life time highs.
The Nifty ended the week, posting a net gains of 213 points, or 2.00 per cent. The coming week is the expiry week and it is obvious that the second half of the week will be dominated by rollover activities.
Going into next week's trade, the Nifty faces a tricky situation. We expect the market to remain volatile, but trade with a positive bias. The index has tested the upper trend line of the 24-month-long rising channel drawn from beginning of 2016.
It would be extremely important to see if the Nifty attempts a breakout from this entire rising channel or continues to just track the upper rising trend line.
In any case, rangebound profit taking bouts cannot be ruled out; but the overall bias of the market will remain generally bullish.
The market faces resistance in the 10,900-10,975 zone and then at 11,010 level. The Relative Strength Index or RSI on the weekly chart stood at 72.8515 and it has marked a fresh 14-period high, which is a bullish sign. It does not show any divergence against price. The weekly MACD is bullish as it trades above the signal line. A white candle that emerged shows that the steady upward pattern is bullish.
Pattern analysis shows Nifty is testing the upward rising trend line of the 24-month-long channel that it has formed. It would be important to see if it attempts to break out of that channel or simply keeps tracking the trend line posting marginal highs amid volatile consolidation.
Lead indicators like RSI are seen breaking out of a pattern, which is bullish. Further, the Nifty has closed above the upper Bollinger Band on both daily and weekly Charts. This shows strong possibility of the uptrend continuing, but the overbought nature of the lead indicators will require market participants to remain vigilant at higher levels.
A study of Relative Rotation Graphs – RRG shows PSU banks have continued to slow down on a weekly basis. However, this week, we may see them consolidate and attempt to regain some momentum. Media, Realty, Services sector stocks along with FMCG may attempt to find a base and relatively outperform the benchmark.
On week-to-week basis, metal stocks may pose no major show, but might attempt to consolidate its position. No major action is expected from pharma and PSU stocks. The broader indices may lose some momentum adding volatility into the trade. However, some stock-specific out-performances may be seen.
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])