A week ago: NIFTY is aiming for new highs. These sectors may perform relatively well | India analysis

After strong consolidation in the weeks preceding this week, the market has finally mounted a decisive rally over the past four sessions. Benchmark index NIFTY50 surged in all four sessions. It closed at a new all-time high, surpassing its previous lifetime high of 20222.45. Amid high volatility, the trading range has widened. NIFTY moved in a range of 491.55 points during the week. The headline index continued its upward trend, closing near its peak with a net weekly gain of 473.20 points (+2.39%).

While markets have risen, so has volatility. Volatility represented by INDIAVIX surged 9.29% to 12.38 on a weekly basis. From a technical perspective, the index remains on a solid upward trajectory. If we continue to advance within the defined and established path, we may test the upper edge of the rising channel translating into the 20500-20650 area level. Spikes in volatility can make markets choppy. However, more often than not, the breakout extends and the index tests the upper edge of the rising channel. After that, some consolidation cannot be ruled out.

Monday is expected to start the week positively and strongly. The 20400 and 20580 levels are likely to act as resistance. Support levels are 20080 and 19900.

Weekly RSI is 65.90. This marked a bullish new 14-period high. It remains neutral and does not show any difference in price. The weekly MACD is trending lower and is below the signal line. However, it appears to be on the verge of a positive crossover.

NIFTY closed above the upper Bollinger Band. Even if it temporarily moves back inside the band, it has laid a strong foundation for a sustainable breakout to occur. This setup further increases the likelihood of a NIFTY test of the upper edge of the rising channel as mentioned above.

Analysis of patterns on weekly charts presents a simple picture. The market pulled back completely, which caused NIFTY to retest its original breakout zone of 18900-18950. Almost in line with what was expected, this section acted as a strong support line and NIFTY not only rebounded but went on to hit a new lifetime high. It is expected that the index could test the upper edge of the rising channel while attempting to test the 20500-20650 area.

All in all, the larger setting certainly looks lively. There is a greater possibility that the market will extend the breakout. However, the coming week may see some sector rotation taking place with more money moving into relatively defensive areas such as FMCG, consumerism, pharma etc and the PSE sector may continue to perform well. It’s a good idea to track the right group of stocks, focusing on those that are enjoying relatively greater strength. An equal level of emphasis must be maintained on protecting interests at higher levels.

Next week’s sector analysis

With Relative Rotation Graphs®, we compared various sectors with the CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all listed stocks.

The Relative Rotation Graph (RRG) shows a similar kind of setup to what we saw last week. We have Nifty Realty, PSE, Infrastructure, Commodities and Energy indices within the leading quadrant. These groups are expected to outperform the broader market.

The PSU banking index rolled inside the bearish quadrant. This can cause this space to start to weaken its relative performance. Apart from this, Metal, Media, Pharma, IT, Auto and Midcap indices are within the bearish quadrant. Among these, the relative momentum of the Metal, Auto, and Pharma groups appears to be improving.

Apart from Nifty Bank, no index is in the lagging quadrant. When it comes to relative performance, this space can be a bit challenging.

Nifty FMCG, consumption, services sector and financial services indices are placed within the improving quadrant.

Important note: RRG™ charts show the relative strength and momentum of groups of stocks. The above chart shows relative performance against the NIFTY500 index (broad market) and should not be used directly as a buy or sell signal.

Milan Vaishnav, CMT, MSTA

Consulting Technology Analyst

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