Ahead Dalal Street Week: Is Nifty 50 Poised for Short-Term Recovery?

On the back of one of the major FII selloffs seen in recent times, the markets succumbed to strong corrective pressure during the week and ended the week on a very weak note. Nifty 50 remained under selling pressure throughout the week; At no time, has he indicated any intention to stage a technical pullback. While weakness persisted in all five trading sessions, the trading range also widened.

The Nifty was seen oscillating in a range of 1167 points in the last five days. Volatility also increased as a result; India VIX rose 18.10% to 14.13 on a week-on-week basis. The benchmark Nifty 50 closed with a deep weekly cut of 1164.35 points (-4.45%).

We have obvious reasons like money flow from Indian markets
Chinese markets, geopolitical tensions in the Middle East and SEBI herald changes in the derivatives trading landscape as we speak and assign reasons for the market decline.

It was trading about 10% above its 50-week MA. Therefore, even a slight reversal towards the highs could see a violent retracement. Despite the kind of decline we have seen in the last few days, the Nifty has not even tested the nearest 20-week MA which is currently at 24441. This speaks volumes about the extent to which the markets were ahead of them. curve

Derivatives data suggests that markets may try to find support at the 25,000 level. In addition to being a psychologically significant level, 25,000 strikes not only has the highest PUT OI by far but the smallest existence of CALL OI. So, even if we continue with the overall downtrend, some minor technical rebound from current levels cannot be ruled out. For the most part, a stable start to the week is expected, and the levels of 25300 and 25450 will act as resistance. Support is expected to come at 24910 and 24600.

Weekly RSI is 59.70; It has crossed below 70 from overbought zone which is bearish. It remains neutral and shows no divergence against price. The weekly MACD appears to be on the verge of a negative crossover as evidenced by the narrowing histogram. A large bearish candle indicates strong selling pressure of the type that was seen throughout the week.

Pattern analysis shows that despite the type of decline we have seen, the primary trend remains intact. On the daily chart, we have tested the 50-DMA; On the weekly chart, we didn’t even test the nearest 20-week MA. As long as we stay above the 24000-24400 zone, the primary uptrend is unlikely to be disrupted.

Overall, from a short-term technical lens, Nifty’s behavior vis-à-vis the 25000 level will be very crucial to watch. If the Nifty is to find some ground and make a base for itself, it will have to keep its head above the 25000 level. Any breach of this level on a closing basis will invite further weakness for the index. Then, the level of the 20-week MA can be tested in the coming days.

While navigating this turbulent phase, it is recommended that we reduce highly leveraged positions and invest in low-beta defensive pockets.

Along with being cautious while managing risks, extreme caution is advised for the coming week.

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.

The relative rotation graph (RRG) shows that the Nifty IT, Pharma, Consumption, Services sector and FMCG indices are within the leading quartile. However, a couple of them show little difference in their relative speeds. However, broadly speaking, these groups can show some resilience and outperform the broader markets relatively.

The Nifty Midcap 100 index has turned inside the weaker quadrant. Apart from this, Nifty Auto is also inside the weakening quadrant and is seen turning towards the lagging quadrant.

The Nifty PSE index has moved into the lagging quadrant. With this
The infrastructure index, which is also within the lagging quadrant, is set to underperform the broader markets. Nifty Bank, Energy, Realty, Metal, PSU Bank, Financial Services and Commodity indices are also within the lagging quadrant.

However, all of them are seen improving their relative momentum against the broader Nifty 500 index.

Nifty Media Index is the only one within the improving quartile; However, it appears to be quickly giving up its relative momentum against the broader markets.

Important Note: The RRGTM chart shows the relative strength and momentum of a group of stocks. In the above charts, they show relative performance against the NIFTY500 index (broader markets) and should not be used directly as buy or sell signals.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst and Founder of EquityResearch.asia and ChartWizard.ae is based in Vadodara. He can be contacted at milan.vaishnav@equityresearch.asia