By Milan Vaishnav, CMT, MSTA
Indian equity market had a good week after a long time, as the market saw solid weekly gains. The Nifty ended the week with a net gain of 217 points, or 2.15 per cent on a weekly basis. The week gone by held and validated two technically-significant events.
In our previous weekly note, we had expected an upmove since Nifty kept defending the critically important 10,040 level. We projected the Nifty50 to move past the 200-DMA and close above that. With both these conditions fulfilled, we continue to remain in a 27-month-long upward rising channel.
Global volatility remained strong through the previous week and is expected to be so in the coming week. We, too, are likely to be affected by this global volatility. The coming week is likely to see the Nifty50 extend current weeks gains.
Though followup gains are expected, they will not come without some volatile consolidation in the coming week. The 10,390 and 10,495 levels should act as immediate resistance for the Nifty50 in the coming week, while supports are expected at 10,210 and 10,115 levels. The range is likely to remain little wide in the coming week, as we discount the probable volatility expected.
The weekly RSI stood at 51.3775 and it remained neutral showing no divergence from price. The weekly MACD stayed bearish, as it traded below the signal line. A white body candle has appeared on the charts. This is a little larger than the average and remains significant, as it has emerged near an important support area on the weekly chart.
Pattern analysis shows the Nifty50 is in a steady 27-month-long upward rising channel, which began in early 2016. The support at 10,040 was held and Nifty stayed in an upward channel without any violation.
Overall, we maintain a positive bias for the coming week. Attention will be drawn towards the sectors that have shown under-performance for long. Some outperformance is expected from those sectors which are clearly showing improvement in relative strength against the broader market.
While using the consolidation phase to make select purchases, positive outlook is advised for the coming week. A study of Relative Rotation Graphs shows there was clearly a loss of momentum in the IT pack and this is likely to extend in the coming week, leading to slight loss of momentum in IT stocks.
The market is likely to see sharp improvement in relative performance of auto, energy, infrastructure and broader indices like CNX200, CNX100 and MIDCAP Universe along with Nifty Next 50 in the coming week. These are quarters that saw loss of momentum over the past week. With the relative momentum improving sharply in these indices, they are expected to perform better.
Apart from this, the metal pack may remain stagnant, and no major outperformance is expected from PSU banks, PSE, realty and the smallcap universe.
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,