Ahead Dalal Street Week: Protect Profits at High Levels, Turn Investments in Tired Markets

Markets consolidated during the past week; The week was shortened as Monday, June 17, was the Bakri Eid holiday. Markets remained range-bound throughout the day in the past five sessions. Even as the Nifty continued to mark additional highs, the intraday trend remained practically absent.

Volatility has also not changed much from last week. The India Vicks rose just 2.79% to 13.18 on a weekly basis. The weekly trading range for the Nifty also remained very limited. The index only oscillated in a range of 268.90 points before posting a marginal weekly gain of 35.50 points (+0.15%).

The coming week is the closing week for the monthly derivative series. Also, in the past sessions, markets have shown clear signs of fatigue. It forms frequent weak candles on the daily chart that it breathes and shows some measured corrective retracements. Looking at derivatives data as well, Nifty may face strong resistance in 23,600-23,650 zone.

This would mean that even if modest upsides are seen, a sustained and trending up move cannot be expected until the zone of 23,600-23,650 is taken out for sure. So, everything goes upside down

A high level should be used to protect profits.

A quiet start to trading is expected on Monday; Levels of 23,650 and 23,790 can act as resistance points for Nifty. Support comes at 23,300 and 23,180 levels. Weekly RSI is at 68.54; It continues to show a bearish divergence against the price as it does not mark a fresh high with the price. The weekly MACD is bullish and remains above the signal line. A spinning top has emerged on the candles.

This not only reflects the indecisiveness of market participants but such formations also have the potential to halt ongoing uptrends if they form near highs.

Pattern analysis shows that Nifty is trying to break above its formed minor rising channel. However, the index has seen rising highs but is unable to achieve a clean breakout. Until the 23,600-23,650 zone is convincingly broken out, the markets may struggle with sustainable and trending up moves.

All in all, the current technological setup shows a lot of indecision, discomfort and tentativeness among market participants. The current framework warrants that we do not blindly pursue up-moves; Instead, until a trending move occurs, we use these measures to protect profits at higher levels. It would be prudent to protect and take profits in stocks which are running very hard and rotate investments to stocks showing promising chart setups with improving relative strength.

It is recommended to effectively rotate investments while maintaining caution on the markets for the coming week, keeping leveraged exposure at moderate levels.

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 Graphs (RRG) shows that the Nifty Metal Index is giving up its relative momentum by remaining within the leading quartile. In addition, the

Realty, consumption, auto and midcap 100 indices are also within the leading quartile. Collectively, these groups can outperform broader markets. Nifty Infrastructure, PSE, PSU Banks, Energy and Commodity Indices remained in the weaker quartile.

Nifty Pharma Index has entered the lagging quadrant. Apart from this, service sector index and IT index are also within the lagging quadrant. Service sector index looks weak; However, the IT and Pharma indices are seen improving their relative momentum against the broader markets.

Bank Nifty, Nifty Media, Financial Services and FMCG indices are placed in the improving quadrant.

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

(The author, CMT, MSTA, is a consulting technical analyst and founder

EquityResearch.asia and ChartWizard.ae.)