Dalal Street Week: The market will not witness rapid movement next week; Select sectors to outperform

The bulk of the past five sessions has been spent on a corrective note by the Indian stock markets. There was a bounce that didn’t last. Nifty struggled to keep its head above the 200-DMA level.

Last week saw a wide trading range of 590 pips. Nifty failed to break the 17,500 level. Trading in line with the overall weak global trading setup, it fell during the week and ended with a net loss of 303.70 points (-1.74%) on a weekly basis.

Next week is also the expiration week. We will have a monthly derivatives expiry, and this is bound to affect the trade.

However, level 17500 still holds the highest Call OI accumulation. In order for any sustained upward move to occur, passing this point will be particularly important. Having said that, Nifty has moderately violated the trendline support on Nifty. It has got support on the 50-week moving average which stands at 16935. This level remains an important support on a near-term closing basis for Nifty.

It has also breached the 200-DMA once again on the daily charts. 200-DMA stands at 17,193. Over the coming weeks, Nifty price behavior against 17,000 will be crucial to watch.

Volatility increased slightly. India VIX rose 3.19 percent to 18.35. Next week is likely to remain within the range.

Gains, if any, are likely to remain capped at 17,500 levels. On the downside, a breach of 17,000 means some increased weakness for the markets. The 17,350 and 17535 levels will act as immediate resistance for Nifty. Support is likely to come in at 17000 and 16880 levels.

The weekly RSI is 49.85. It remains neutral and shows no difference against the price. Weekly MACD turned bearish again after a negative crossover. It is now trading below the signal line.

The pattern analysis shows that Nifty has slightly breached the briefly extended trendline support level. However, I was able to lock in on it. This trend line starts from 15400 levels, joins the next high point and extends to itself.

Nifty also defended the 50-week moving average so far which remains an important support level to watch over the coming weeks.

Overall, there are fewer chances that the markets will see any wild upward movement in the coming week.

In the event of any technical pullback, the bullish moves may be capped near 17,500 levels. On the downside, defending the 50 week EMA on a closing basis will be very important for the markets. The safe and prudent way to navigate such a technically complex market is to be highly specific to the stocks in the approach.

It would be wise to stick to low beta stocks. Also, focus on defensive pockets such as consumer goods,

Medicines and consumption will pay off, too. A cautious approach is advised for the next week.

In our look at Relative Rotation Graphs®, we compared different sectors against the CNX500 (the NIFTY 500 Index), which represents more than 95 percent of the relative market capitalization of all listed stocks.

Analysis of Relative Turnover (RRG) graphs shows that the Commodities, Energy, Pharmaceuticals and PSE indices are positioned within the leading quarter and may relatively outperform the broader markets. Commodity and metal indices are also within the leading quarter, but are seen giving up their relative momentum.

The Nifty Infrastructure Index declined within the leading quarter as well. PSU Bank Group continues to slide within the weak quarter. The media is also inside the weak quarter, but is sharply improving on its relative momentum against the broader NIFTY500 index.

The IT index is also improving its relative momentum while staying within the lagging quarter along with the real estate index. Nifty Bank entered in the late quarter and the Financial Services group also continued to struggle within the quarter.

All of these combinations are likely to underperform proportionately than the broader markets. Consumer goods and the consumption package both fall firmly within the improvement quadrant. He is expected to do well over the next week.

Important note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show the relative performance against the NIFTY500 Index (Wide Markets) and should not be used directly as buy or sell signals.

(Milan Vaishnav, CMT, MSTA, Consulting Technology Analyst and founder of EquityResearch.asia and ChartWizard.ae based in Vadodara. He can be contacted at milan.vaishnav@equityresearch.asia)