ETMarkets.comThe week that passed saw some initial signs of entering a broad corrective consolidation as the Nifty ended near the low point of its trading range. Given the corrective undertones, trading ranges also widened; The Nifty 50 oscillated within a trading range of 532.35-points.
The volatility spiked as well; Volatility barometer India VIX rose 13.63% to 15.22 on weekly basis. Setting a distinct corrective undertone, the headline index closed with a net weekly loss of 383.75 points (-1.52%).
In the previous technical note, it was clearly pointed out that the Nifty continues to deviate significantly from its mean; The nearest 20-week MA at 23795 is 1057 points below current levels. The 50-week MA at 22208 is over 2640 points below the current close. Even if the Nifty attempts a modest mean-reversion, it may see this corrective bias widening. Derivative data suggests that the index has pulled below its resistance level; The zone of 25000-25250 is now an important resistance for the index. As long as Nifty remains below this zone, it is likely to have profit-taking bouts from higher levels.
Expect the markets to start the week anew on a softer and softer note. Levels of 25075 and 25250 are likely to act as resistance points for Nifty; Support comes lower at 24600 and 24480 levels.
Weekly RSI is 67.74; It has slipped below the 70 level from the overbought area which is bearish. However it remains neutral and shows no divergence against price. Weekly MACD is bullish and above its signal line; However, a narrowing histogram indicates an imminent negative crossover in the coming weeks.
A bearish engulfing candle has emerged; Following an uptrend, such a candlestick event has the potential to disrupt the current trend. However, this will require confirmation going forward.
A pattern analysis of the weekly chart shows that the markets are showing some first signs of exhaustion at higher levels. The zone of 25000-25250 has become an immediate resistance zone and is unlikely to show any trending move on the upside unless Nifty moves beyond this zone convincingly. It continues to deviate from its average; This can leave the index somewhat susceptible to corrective retracements.
Overall, markets are likely to continue exhibiting tentative behavior; Until the mentioned resistance zone is convincingly breached, the Nifty may continue to remain under extensive consolidation or corrective pressure.
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.
ETMarkets.comETMarkets.comThe relative rotation graphs (RRG) show that the Nifty Pharma, IT, Consumption and Midcap 100 indices are within the leading quartile. Although the midcap 100 index is giving up its relative momentum, these groups are likely to outperform the broader markets in the coming weeks.
Nifty Auto and PSE index are in weakening quartile; The PSE pack showed a strong improvement in its relative momentum against the broader Nifty 500 index.
Nifty Financial Services, Commodities, Infrastructure, BankNifty, PSU Bank, Metals, Realty index continue to lackluster within the lagging quadrant and are set to underperform the broader Nifty 500 index. Nifty Energy Index is also within the lagging quadrant; However, it appears to be rapidly improving its relative momentum against the broader markets.
Media and services sector indicators are currently placed within the improving quadrant. 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
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