On the weekly chart, the index stayed very much in a defined range, as it remained inside the retracement channel that it has formed for itself. As the number of trading days was less, the index move remained limited and Nifty traded in a 265-point range.
While staying exactly in the middle of the retracement range and above the major upward rising trend line, the headline index ended with a net gain of 360 points, or 2.48 per cent on a weekly basis.
Nifty will walk on thin ice in the coming week. Global markets are buoyant with the S&P500 testing the 4,000-plus levels for the first time. The Indian market enjoys strong correlation with the S&P500 on a weekly basis, though that correlation stands a bit disturbed on a daily basis.
On the other hand, the US Dollar Index (DXY) rose above the 93 level before cooling off a bit, even though bond yields have not cooled off much from their 14-month highs. This global trade setup has made sure that even if the domestic market post incremental gains, it will not be without some volatility ingrained in it.
The 20-week moving average, which currently stands at 14,230 level, is the most crucial support for Nifty in the near term. This 20-week moving average is acting almost as a proxy trend line for the index, as it runs along the upward rising trend line drawn from the low point seen of March 2020.
The 14,950 and 15,165 levels will act as key resistance points for Nifty in the coming week, while supports will come in at 14,600 and 14,450 levels. The trading range is expected to widen too.
The weekly RSI stood at 63.63 level; it stays neutral and does not show any divergence against price. The weekly MACD remains bearish and trades below the signal line. No significant formations were noticed on the candles.
Pattern analysis showed while Nifty continued to stay in the major upward rising channel over the past few weeks, it has just reversed to its mean. The index had seen a sharp deviation from its mean, and is currently just correcting its phenomenon.
The 20-week moving average remains one of the most important supports for the near term; this weekly MA also acts as a proxy trend line of the rising channel where the index is trading.
Broadly speaking, Nifty has hurdles to cross at 15,000 level, as this level has maximum Call Open Interest and saw fresh addition of Call OI during the week.
From a technical perspective, the market may stay in a broad consolidating range for some more time. The texture of the market is not only likely to get defensive, but stock specific as well. It is recommended to stay highly selective and keep overall exposures modest. Defensive pockets like IT, Pharma and FMCG may show resilience in the coming week.
In our look at the Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95% of the free-float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) showed the Nifty Commodities Index and Nifty MIDCAP100 index stayed firmly placed in the leading quadrant along with Nifty PSE and the Metal Indices. These four sectors are likely to relatively outperform the broader Nifty500 Index. The Smallcap, Infrastructure and PSU Bank Indices are also in the leading quadrant, but they appear to be paring their relative momentum.
However, stock-specific moves can be seen within these groups. Nifty Auto Index has rolled inside the weakening quadrant, hinting at a likely end to its relative outperformance. Nifty Bank, Services Sector, Realty and Financial Services indices remain in the weakening quadrant. Nifty Consumption Index languished in the lagging quadrant, while FMCG, Media and Pharma Indices are also inside the lagging quadrant, but appear to be attempting to improve their relative momentum.
Nifty Energy Index remains inside the improving quadrant. It appears to be maintaining its relative momentum against the broader market. This group may continue to put up a resilient performance against the broader market.
Important Note: The RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against the Nifty500 Index (broader markets) and it should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone
Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])