A week ago: Looks like NIFTY will ring in the new year this way | India analysis

The stock market ended the year on a very strong note. As the week comes to an end, we not only end the month, but we also end the year. On a monthly basis, Nifty showed a remarkable rise this December, gaining 1598 points (+7.94%). On a YTD basis, Nifty was the fourth best index with a return of 19.68% on a year-to-date basis. During the same period, Nasdaq rose 44.33%, and the S&P 500 index rose 30.42%. This week has been a trending week, with the exception of the last trading day of the week when markets consolidated. Over the past four days, the index had fluctuated in a range of 472 points before ending the week with a net increase of 382 points (+1.79%).

Looking at each industry, the real estate index performed the best, recording a return of 79.56%. It was followed by PSE and Auto Index, which recorded returns of 77.36% and 46.97% respectively during the same period. The worst annual performance came from the Nifty services sector index, which returned 11.09%, while Banknifty underperformed significantly and returned a slightly better return of 12.28%. Speaking of the week just passed, volatility has skyrocketed. India Vix rose 5.80% to 14.50 level despite being off its weekly high.

The market is likely to enter the new year quietly. Consolidation may continue as the first weekly options expiration data defines the 22000-21500 range for the index. For Nifty, 21850 and 22000 levels are likely to act as resistance points. Support is at 21500 and 21360.

Weekly RSI is 76.33. Although it has hit a new high on the 14th and remains overbought, it remains neutral with no difference in price. The weekly MACD remains bullish and remains above its signal line.

A pattern analysis on the weekly chart shows that the breakout achieved in the rising channel when Nifty crossed the 20800 level remains almost intact. However, we also observe that the market deviates significantly from the mean. The earliest 20-week MA is 19964, which is 1761 points below the current level. The 50-day moving average is 2778 below the current level. This shows that the market is ahead of the curve and overextended on the chart. A slight mean reversion can lead to some degree of corrective retracement in the market.

Unless the previous high of 21801 is clearly cleared, the market may have set a temporary high of its own. A solid resistance area has been created in the 21800-22000 area even as the market gradually attempts to hit new highs. The market will soon cross the 22000 level and it will be very difficult to stay above it. The most prudent way to navigate overheated markets is to keep leverage exposure at a moderate level and invest only in stocks that are showing strength, or at least improving relative strength. It is now advisable to turn to traditionally defensive pockets like Pharma, FMCG etc while making new purchases. A highly selective, stock-specific approach is recommended for the coming week.

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) continues to show a mixed setup. Nifty Energy, PSE, Real Estate, Infrastructure and Commodities are within the major quadrants. These sectors are likely to perform relatively better than the broader market.

Nifty Pharma, PSU Banks, Media, Auto and Midcap 100 indices are within the bearish quadrant. Metals indices are also in the bearish quadrant, but their relative momentum appears to be improving.

The Nifty IT index remains within the lagging quadrant, showing sharp improvement in momentum relative to the broader market.

Nifty FMCG, Services Sector, Banknifty and Financial Services indices are 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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