Dalal Street Week Ahead: After Nifty’s rapid rise, it is time to take a cautious and defensive stance.

The market continued its steady upward trend. Following a week of strong trends, the Nifty not only closed at a lifetime high but also ended on the sixth consecutive week of gains.

The market posted decent returns despite some signs of consolidation later in the week. The last two days have been choppy. However, on a weekly basis, the volatility represented by the INDIA VIX remained unchanged. On a weekly basis, India VIX rose only 0.71% to 12.47.

The trading range continued to expand with the index fluctuating in a range of 498.35 points over the past five sessions. Benchmark index Nifty50 ended the week with a huge gain of 701.50 points (+3.46%).

From a technical perspective, last week created a gap. In the process, the index moved the support zone higher from 20,000 to 20,450-20,550 levels. The Nifty index also closed above the upper Bollinger band. Even if there is a temporary decline within the bands, the market could continue its upward trend further, even with the possibility of some consolidation from current levels.

Nifty’s action towards 21,000 level is very significant. If the index can break out of this level and stay above it, it will open up more room for the market to rise. But until that happens, the market is also looking at a situation where it has entered a stabilization period and can take a moment to catch its breath.

Monday looks to be off to a quiet start. The 21,090 and 21,265 levels are likely to act as potential resistance points. Support is provided at the 20,700 and 20,580 levels. The trading range is likely to be wider than usual.

Weekly RSI is 72.44. It hit a bullish new 14-period high. It remains neutral and does not show any difference in price. The weekly MACD showed a positive crossover. It is currently a bull market and is trading above the signal line.

Pattern analysis of the weekly charts shows that Nifty has not only touched a lifetime high but has also broken out of the rising channel by a gap. In the process, the index lifted the support from the 20,000 level to the 20,450-20,550 area. As long as the index keeps his head above this area, the breakout and trend will remain intact.

With the index closing above the upper Bollinger Band, the chances of the index rising further increase. However, considering the uptrend in Nifty, it is slightly ahead of the curve. In this case, we could see the market slipping into some degree of distant consolidation without 21,000 being removed. Overall, it is a time of need for defense and caution.

Protecting profits at current levels is of utmost importance. New purchases must be made very selectively, but the focus must also be on protecting profits at current and higher levels. Defensive pockets such as FMCG, IT and PSEs may continue to find traction in the future. Profits must be protected at a higher level while being extremely selective about new purchases.

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.

Relative Rotation Graph (RRG) shows that Nifty Realty, PSE, Infrastructure, Energy and Commodities indices are within the major quadrants. These groups are likely to relatively outperform the Nifty 500 index in the coming week.

Nifty Auto Index, which was in the bearish quadrant, appears to be losing its momentum. Additionally, Midcap100, PSU Bank, Media, Pharma and Metal indices continue to drift inside the bearish quadrant. In these groups, you may see individual stock shows, but overall they may be slower in terms of relative performance. NIFTY IT index rolled inside the lagging quadrant. Now, it could be a relative underperformance in the broader market.

Nifty Bank index has finally moved inside the improving quadrant. This could end the sector’s relative underperformance. Apart from this, consumption, FMCG, financial services and service sector indices are also included in the improving quadrant.

Important note: RRGTM 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 is a consulting technology analyst and founder of EquityResearch.asia and ChartWizard.ae, headquartered in Vadodara. He can be reached at milan.vaishnav@equityresearch.asia.