A week ago: NIFTY is expected to consolidate on a broad scale. There will be no runaway movement below this level | India Analysis

There are two down weeks, one up week, and one bullish week. This is a summary of the market activity over the past month. Last week the market consolidated and mostly stayed within a defined trading range. The previous five sessions remained volatile with Nifty sticking to its short-term 20-day MA. The weekly chart continues to maintain a consolidation trend. The trading range narrowed during the week as the index fluctuated in a 423-point range. The headline index finally closed with a negligible weekly loss of 71.30 points (-0.33%).

From a technical perspective, the market is showing that some consolidation or limited corrective retracement is more likely. The 22100-22200 section is a major resistance area, as can be seen through pattern analysis and OI data. Additionally, wider bands than usual are likely to keep the market in a wide trading range. A runaway rise is likely to occur only if Nifty crosses the 22100-22200 area reliably. Until this happens, we will see markets remain fragile and susceptible to profit-seeking bouts at higher levels. Volatility continued to rise. India VIX rose 5.10% on a weekly basis to 15.45.

Markets are likely to start the week quietly. The 21900 and 22080 levels are likely to act as resistance points. Support is likely to come in at the 21600 and 21480 levels.

Weekly RSI is 68.91. It remains neutral and does not show any difference in price. Weekly MACD is bullish and hovering above the signal line. A hint of momentum loss is also observed in the narrowing histogram.

According to pattern analysis on weekly charts, Nifty showed a breakout above 20800 level. This break of the rising channel saw the index testing recent highs above the 22000 level. Currently the index appears to be consolidating and some minor retracement cannot be ruled out. A sustainable upward move will occur only after Nifty crosses above the 22100-22200 area.

There continue to be hints of a consolidation or slight retracement in the Nifty next week as well. However, we can see an improvement in the relative strength of Nifty Bank, one of the major sector indices. With Nifty Bank, we can expect resilient performance in defensive sectors such as IT, Pharma, FMCG, etc. It is recommended to avoid large leveraged positions. While a highly selective approach is adopted, careful protection of interests is also encouraged 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.

Relative Rotation Graph (RRG) shows that Nifty PSE, Real Estate, PSU Banks, Infrastructure, Metals, IT, Commodities and Energy indices are within the first quadrant of RRG. While real estate indices appear to have given up relative momentum, all other groups are expected to outperform the broader market relative to others.

Nifty Auto and Midcap 100 indices remain in the bearish quadrant. Although individual performance in these sectors cannot be ruled out, their relative performance may continue to slow.

Nifty Financial Services, FMCG, Consumption, Nifty Banking and Media indices continue to weaken within the lagging quadrant. While the Media index remains within the lagging quadrant, the Pharmaceutical index is showing rapid improvement in relative momentum despite being within the lagging quadrant. Apart from the Pharma Index, other groups may underperform relative to the broader index.

Nifty Services Sector index is the only index included in the improving quadrant. But it also appears to be on the verge of rolling inside the trailing 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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