Nifty Faces Key Levels; A cautious approach is advised for the coming week

The week that passed was a stark contrast to the previous week as the markets consolidated heavily in a tight range. In the week prior to this, the Nifty had seen a significant retracement of over 1167 points; However, in the last five trading days, the index remained completely devoid of any directional bias and ended the week on a flat note.

Volatility also decreased; The India VIX fell 6.42% to 13.22 on a weekly basis. The trading range also became much narrower; The index oscillated in the range of 539.70 points. Following some strong consolidation, the headline index closed flat with a minor weekly loss of 50.35 points (-0.20%).

From a short-term perspective, the coming weeks are crucial for the markets. Following SEBI’s recent directives, NIFTY Bank and FINNIFTY will stop weekly contracts from November 20. It will be only Nifty which has weekly contracts. This may make the indices a bit volatile in the coming days. Importantly, Nifty’s behavior against the 25000-25050 zone is important as 25050 is where the 50-DMA is and the 25000 level remains a psychologically important level. Markets deviated greatly from the mean anyway. The closest is the 20-week MA 24541; Nifty has not even tested this level during the recent retracement. Even if it is tested, the primary uptrend will still be very much intact.

Next week could see a dull start; The levels of 25100 and 25365 will act as potential resistance points. Support is coming lower at 24800 and 24540 levels.

Weekly RSI is 59.09; It remains neutral and shows no divergence against price. The weekly MACD has shown a negative crossover; It now trades below its signal line.

Pattern analysis shows that the weekly low point of 24694 found support on an extended rising trendline. This trendline was drawn from the 22124 level and extends itself by joining the next high point. It is important to note that this low point coincides with the 20-week MA; The fastest and nearest weekly MA is at 24541. This makes the zone of 21540-21700 a very important pattern support zone for Nifty.

Overall, we have a lot of short positions which is reflected by the derivatives data. Specifically for the coming week, the behavior of Nifty vis-à-vis the 25000-25050 level will be crucial to watch. On the other hand, the strike of 25000 has the highest call and put OI coexistence; This makes this level almost an inflection point for the index.

For the Nifty to extend its technical pullback that it attempted last week, it will have to move past and keep its head above the 25000-25050 zone. Investing in stocks showing strong relative strength is strongly recommended; This will ensure resilience if the markets do not move in our desired direction. Caution is recommended for the next 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.

Relative Rotation Graphs (RRG) shows the Nifty Pharma, Services Sector, IT, Consumption and FMCG indices within leading quartiles. Although the FMCG index has seen a decline in its relative momentum, these groups are likely to outperform the broader markets relatively.

Nifty Midcap 100 and Auto Index are in the weaker quartile. However, they may continue to exhibit stock-specific performance while relative performance may slow.

PSE, Infrastructure, Realty, Metal, Nifty Bank, PSU Bank, Energy, Commodities and Financial Services Indices are in the weaker quartile. However, apart from commodities, energy and PSE indices, rest of the indices saw a sharp improvement in their relative momentum.

The Nifty Media Index is the only index within the Improving Quadrant. However, it is seen giving up its relative momentum against the broader markets. Important Note: RRG™ charts show 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, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. He can be contacted here. milan.vaishnav@equityresearch.asia)

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