By Milan Vaishnav
The week gone by was better for the Indian equity market, as the benchmark Nifty50 recovered bulk of its losses in the second half. With a positive ending of Friday's session, the Nifty ended the week with a nominal gain of 28.15 points, or 0.27 per cent. The Nifty has managed to move past and stay above the 10,490 mark, but it is yet to clear the resistance zone at 10,490-10,535 comprehensively.
When we begin a new week from Monday, we are all likely to see the Nifty try to extend its gains. However, we also do not expect any runaway rally and expect the index to find resistance around the 10,650 mark.
The coming week will see the 10,650 and 10,690 levels act as immediate resistance for the index. Supports will come in at 10,490 and 10,375 levels.
The Relative Strength Index or RSI on the daily chart stood at 66.2384. It continues to show bearish divergence as the Nifty has marked a fresh 14-period high while the RSI has not done so. The weekly MACD has shown a positive crossover. It is now bullish even as it trades above its signal line.
On the candles, a Hanging Man emerged. Since it has come after an upmove, it may cause some rally to pause for a while in between.
Pattern analysis shows the Nifty50 has managed to stay above its critical support levels. However, it also shows that in event of continuation of the upward move, it may find serious resistance once again near the 24-month-old rising trend line, which fell in the area between 10,650 and 10,675 levels at the end of the previous week. It may so happen that the Nifty many not see any significant decline in event of any consolidation, but may not see any one-way upmove beyond the 10,675-mark.
The market is likely to remain highly stock specific and will continue to see certain pockets outrightly outperform the market. We recommend avoiding shorts as the structural uptrend remains intact. Select purchases may be made and profits can be protected all through next week at higher levels.
A study of Relative Rotation Graphs or RRG shows the PSU Bank index has significantly lost momentum on a weekly basis. It is likely to continue to consolidate in the coming week as well. Media and Realty stocks may relatively outperform along with select pocket of the smallcap universe. Broader indices like Midcap and Nifty Next50 may perform better. Auto, Infra and FMCG stocks will continue to see positive consolidation with selective outperformance. Pharma stocks are likely to continue to relatively underperform the broader market along with the energy pack. The IT counter may not see any significant relative outperformance either.
Important Note: RRGTM charts show you the relative strength and momentum for a group of stocks. In the above chart, they show a relative outperformance against Nifty 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])