Weekly Outlook: Mild technical downside possible; NIFTY tends to come under selling pressure at higher levels | India Analysis

During the truncated week, markets were largely corrective, with major indexes falling mid-week. In our previous technical note, we had mentioned that a runaway move is not expected and support for Nifty exists well below the 20-week MA. The market ended up trading exactly along the lines expected. Not only did they not go any higher, they ended up testing said support levels. During the truncated week, the trading range widened further with Nifty oscillating in the range of 649.80 points. Volatility has soared. India Vix rose 16.69% to 13.46. Headline index Nifty ended the week with a net weekly loss of 372.40 points (-1.65%).

From a technical perspective, the market has lowered its resistance point. The high of 22775 became an intermediate high for Nifty, but immediate resistance was down to the previous week’s high of 22427. On the other hand, the 20-week moving average located at 21921 could be considered immediate support on a closing basis. 100-DMA is also close by. It’s currently at 21729. In the coming days, we can expect Nifty to remain in a wide trading range with 22450-22500 acting as a strong resistance point.

Next week looks set to start on a steady note with the 22450 and 22700 levels acting as potential resistance points. Support is at 22000 and 21780.

Weekly RSI is 61.78. It hit a 14-period low in a downtrend. However, it remains neutral and does not show any difference in price. Weekly MACD is trending lower and trading below the signal line.

Pattern analysis of the weekly charts shows that the last phase of the Nifty rise saw a strong bearish divergence in the RSI against the price. While the index is making higher highs, RSI is making lower highs, indicating the emergence of a bearish divergence.

Overall, the technical decline may continue next week. But at the same time, the market is prone to continued higher levels of selling pressure. In addition, except for a short-term market rebound, it is likely that the market will continue to show risk aversion. This can lead to defensive pockets like IT, Pharma, FMCG etc. which can try and display better relative strengths. Overall, we strongly recommend reducing your leverage exposure. We recommend taking a very cautious approach next week while remaining extremely selective.

Next week’s sector analysis

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

The Relative Rotation Graph (RRG) shows that the consumption index has moved inside the main quadrants. Nifty Auto and Metal sectors are positioned firmly within the leading quadrant. Apart from this, Pharma and PSU Bank indices were also positioned in the leading quadrant but are showing rapid loss of relative momentum. These groups are likely to outperform the broader market.

Fabulous infrastructure and raw materials rolled into the weakening quadrant. Nifty Energy, Midcap 100, PSE and Realty indices are also within the bearish quadrant.

Nifty IT and media groups continue to languish within the laggards quadrant. The Nifty FMCG index is also within the lagging quadrant but its relative momentum appears to be improving.

Nifty Services Sector Index has entered the improving quadrant. Financial Services Sector Index and Banknifty are also in the improving quadrant and may see improvement in their relative strength in the coming days.

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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