Dalal Street: Dalal Street Week Ahead: The Market to Stay Very Limited by Stocks

In previous technical comments and forecasts, this week was expected to see some consolidation in the range. It was also expected that this consolidation could be divergent moves and some bouts of profit taking from higher levels.

However, the downsides were expected to remain limited. While dancing to these exact tunes, the markets spent the week holding in a specific range with limited downsides. All sessions either saw the markets open lower and then recover from the lows, or the markets saw a bout of general profit taking only to be bought at low levels again.

Due to the consolidation behavior in the markets, the trading range also remained narrower; Nifty fluctuated only 335.90 pips during the week. The main index finally finished with a net profit of 239..25 points (+1.39%) on a weekly basis.

From a technical perspective, there are a few things one needs to note. On the one hand, Nifty opened above the 50-week moving average which stands at 17105 and has remained above that throughout the week. Now, Nifty is above all its main moving averages.

On the other hand, on the lower time frame charts, Nifty has established a potential top at 17500. This level is likely to act as resistance unless it is comprehensively taken out. Until this happens, one can expect bouts of profit taking from higher levels. At the same time, one also needs to bear in mind that while markets continue to remain vulnerable to consolidation, they may remain range-bound with limited downsides.

Next week, Nifty price action against 17500 levels will be important to watch.

Volatility rose. INDIA VIX rose 14.29% to 18.92 on a weekly note. Next week is likely to see 17500 and 17625 levels act as potential resistance points. Support is likely to come in at 17300 and 17180. The weekly RSI is 57.62; It continued to record its highest level in 14 periods. However, the RSI is neutral and is not showing any divergence against the price. The weekly MACD indicator is bullish and remains above its signal line. Apart from the white body that appeared on the candles, no other significant formation was seen on the charts.

Next week is a truncated week for the markets. Tuesday is a commercial holiday at the expense of the month of Muharram. Very likely we will see range bound consolidation to continue with 17500-17600 area as severe resistance. Unless the 17500-17600 levels are taken out comprehensively, it is highly recommended to use all bullish moves to protect profits at the higher levels.

It is also unlikely that we will see any particular sector dominating the market landscape. Upcoming sessions are likely to remain highly performance-limited. A cautious positive approach is advised during the week.

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

Analysis of Relative Circulation (RRG) graphs shows that while Nifty FMCG, Consumption, Automotive, Financial Services and Bank Nifty are within the lead, they are all giving up their relative momentum against the broader NIFTY500 index.

This indicates that these groups may see themselves as taking a breather after the strong moves seen in the recent past. Nifty Infrastructure and Nifty Energy continue to remain in the weak quarter. The Nifty PSE Index entered the late quarter.

You are likely to see a relatively weak performance against the broader markets. On the other hand, the Nifty Commodities, Media and Metal indices are within the lagging quarter; However, an improvement in its relative momentum has been observed against the broader markets.

The Nifty IT Index entered the late quarter. This indicates that the phase of relative underperformance may be over in this sector. We will see better performance of this group over the coming days. Nifty Realty and Services indices also remain in the improving quarter.

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

Milan Vaishnav, CMT, MSTA, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae based in Vadodara. He can be reached at e-mail: milan.vaishnav@equityresearch.asia