Market Overview
Markets continued to remain tentative over the past five days, trading with a bearish undertone as the Nifty digested the reaction to the US election results. Although there were strong technical rebounds for two days, it sold off later, which kept the Nifty in a broadly defined range. The trading range was wider than usual with the Nifty oscillating in a range of 721 points. Volatility eased, and the India VIX fell 6.95% to 14.47 during the week. Following this series trade with weak underlying bias, the headline index closed with a net weekly loss of 156.15 points (-0.64%).
ETMarkets.comTechnical analysis
From a technical perspective, the markets are not out of the woods yet. The Nifty has breached the 20-week moving average, which is currently at 24,775. This level also coincides with an extended trendline that initially acted as support but now acts as resistance. Below this point, there are several other resistance levels as well. The 100-day moving average is placed at 24,709, and the shorter-term 20-day moving average is placed at 24,486. Combined, it has formed a 250-point resistance zone between 24,500-24,750 levels. This means that all technical rebounds will start facing turbulence as soon as the index approaches this zone. The resistance level has been pulled down. On the downside, major pattern support is present at 23,800; If this is violated, the markets will weaken. This keeps the Nifty in a broad but well-defined trading zone.
ETMarkets.comOutlook for next week
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A calm start to the week is likely from Monday. Levels of 24300 and 24485 are likely to act as potential resistance points for Nifty, while support comes at 23960 and 23800 levels. Trading ranges are likely to be wider than usual.
Weekly RSI stands at 49.50, remains neutral and shows no deviation against price. The weekly MACD is bearish and remains below its signal line. Pattern analysis of the weekly chart suggests that the Nifty remains in a corrective downward trajectory. The recent downward move has also pulled down resistance levels for the index. Currently, the markets have several resistance levels in the zone of 24500-24750. With immediate pattern support present at 23800, Nifty remains in this wide but well-defined trading zone.
Overall, the markets are likely to witness an intermittent technical rebound in the coming days. However, it is important to keep in mind that a sustained rally is not likely until the Nifty moves out of the 24500-24750 zone. Until this zone is crossed, no run is likely to be seen in Nifty. Therefore, during any technical rebound, it is important to carefully protect gains at higher levels. Rather than mindlessly chasing such rebounds, it is important to be cautious of positions at higher levels, as markets remain vulnerable to selling pressure at those levels. Caution is advised for the coming week.
ETMarkets.com(In our look at Relative Rotation Graphs®, we compared various sectors against the CNX500 (NIFTY 500 Index), which represents more than 95% of the free float market cap of all listed stocks.)
Relative Rotation Graphs (RRG) analysis
The relative rotation graphs (RRG) show that the financial services index Nifty has rotated within the leading quartile along with the IT, services sector and pharma indices. These groups are likely to continue to outperform the broader Nifty 500 index.
The Nifty Consumption Index has moved into the weakening quadrant. The FMCG and Midcap 100 indices are also within the weakening quartile and may continue to underperform their relative performance.
Nifty Auto, Commodities, Energy, Media, Infrastructure, Realty and PSE indices are within the lagging quadrant. These groups may be relatively underrepresented in broader markets.
The PSU Bank Index moved into the improving quadrant along with Nifty Metal and Nifty Bank Index. They may continue to improve their relative performance against the broader markets.
(Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the above chart, they 1 (Indicate relative performance against the NIFTY500 index (broader 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)
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