Week Ahead: NIFTY To Stay Broadly Ranged In The Truncated Week; This Zone Emerged As A Strong Support Area For Markets

The previous five days of the week were spent in a broad range where the markets remained in wide-ranged consolidation and ended the week on a modestly negative note. The NIFTY oscillated in an over 600-point range just like the week before this one and stayed predominantly in a corrective mode except for the last day where it saw some technical rebound. The US Bond yields that haunted the markets got stable and this aided the market sentiment from further deteriorating than the present levels. As compared to the previous week, the NIFTY formed a lower top and a lower bottom indicating the corrective intent of the markets. Banks and Midcaps underperformed as they lost more than the front-line NIFTY. The headline index ended with a net loss of 236.70 (-1.61%) on a weekly basis.

We have a 3-day truncated week with Monday and Friday being trading holidays on the observance of Holi and Good Friday, respectively. Given the short-trading week, the markets are broadly expected to stay in a defined range with limited moves on either side. The volatility over the week changed little; the INDIAVIX rose 3.31% to 20.65 on a weekly note. Though the US Bond yields will be closely watched, they are unlikely to cause trouble at least in this week. Strengthening US Dollar will be something that will be closely watched. In any case, defending the previous week’s low of 14264 will be inevitably important for the markets.

The coming week will see the NIFTY adjusting itself to the global trade setup on Tuesday as it will open after a trading holiday on Monday. Broadly speaking, the levels of 14665 and 14800 will act as resistance points; the supports will come in at 14250 and 14110 levels. The range, strictly from a technical perspective remains a bit wider than usual given the present structure of the charts.

The weekly RSI stands at 60.42; it remains neutral and does not show any divergence against the price. The weekly MACD is bearish and stays below its signal line. Apart from a black body that emerged on the candle, no other formations were noticed on the charts.

The pattern analysis shows that the markets are simply retracing following a very steep deviation from its mean. It continues to remain in a primary uptrend; just the retracement is bringing it back near its mean. The faster 20-Week MA which stands at 14122 at present will be an important support for the markets to watch for over the coming days. With major pattern support existing near 14000 on the daily charts, the zone of 14000-14120 becomes a major support zone for the markets for the coming weeks.

We will continue to see the markets staying highly stock-specific in nature. Apart from some defensive preferences playing out in stocks, it would be difficult to have any sector-led leadership. The moves in the markets will largely stay scattered and more stock-specific in nature than sector-specific. We reiterate adopting a cautious view on the markets and keep excessive leveraged exposures under check so long as the markets are under the broad consolidation phase.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

The review of Relative Rotation Graphs (RRG) shows that the PSUBank Index and Auto Index along with the Small Cap index continue to lose relative momentum despite staying in the leading quadrant. The NIFTY Commodities and the MIDCAP100 Index along with NIFTY Metal Index stay strong and may show up stock-specific out-performance against the broader markets. The NIFTY Metal Index has rolled over inside the leading quadrant from the weakening quadrant.

The NIFTY Services Sector, NIFTY Bank, Realty, and NIFTY Financial services sector stay inside the weakening quadrant. They are steadily paring their relative momentum against the broader NIFTY500 Index. No major relative outperformance can be expected from these groups.

The NIFTY IT Index has crossed over to the lagging quadrant. It finds company with NIFTY FMCG Index, Media, and Pharma Index which also continue to languish inside the lagging quadrant. These groups are likely to collectively underperform the broader markets on a relative basis.

The NIFTY FMCG Index is also inside the lagging quadrant. However, it is seen sharply improving its relative momentum to move towards the improving quadrant. However, it is in the process of completing its bottoming-out process. The NIFTY Energy Index is well-placed inside the improving quadrant and appears to be steadily maintaining its relative momentum against the broader markets.

Important Note: RRG™ charts show the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst,