Nifty’s trend remains intact after hitting fresh peak; Caution has been advised for the coming week

The week that passed saw the markets once again hit new lifetime highs; In fact, the benchmark indices closed at fresh highs. Markets were mostly trending higher in the last five sessions; And despite some consolidation in the last trading session of the week, the Nifty closed at a fresh weekly closing high. The range of trade also became wider; The index oscillated within a trading range of 680.20-points. Volatility is also significantly reduced; India VIX fell 17.53% to 12.55. Setting a stark contrast undertone to the previous week, the headline index registered a weekly gain of 504.35 points (+2.03%).

As we enter the new week, the undercurrent apparently remains strong. However, despite the bullish trend and the markets showing no signs of slowing down, it is time that we follow this trend with extreme caution from now on.

The index continues to deviate significantly from its average, the 50-week MA is 3000 points below the current close. In a very short-term perspective, Nifty has pulled its support level up to 25000; As long as the index remains above this level, it may consolidate higher. Any slippage below this point could see some deep consolidation in the markets.

In any case, if the trend continues the way it is now, the current trend could become a bit unsettled and leave the markets vulnerable to corrective bouts from higher levels.

The coming week is expected to see the market on a steady note; Levels of 25500 and 25650 can act as potential resistance points for Nifty. Support falls at 25100 and 24920 levels. Trading ranges are expected to be wider than usual.

Weekly RSI is 71.64; It shows a bearish divergence against the price as the RSI has not marked a new high with the price. The weekly MACD remains bullish and above its signal line.

A bullish engulfing candle has emerged; However, it is extremely important to note that this is not a valid engulfing pattern as it appears following an uptrend at a higher point. This should not be interpreted as a bullish setup.

Looking through the weekly chart pattern analysis, the Nifty remains at its high; There is nothing on the chart price action front that suggests the possibility of a major retracement. However, given the overall technical structure and the way the index has deviated from its mean, we should approach the markets very cautiously as they remain vulnerable to profit-taking attacks from higher levels.

Overall, while the underlying trend remains intact and bullish, we need to approach the markets on an extremely cautious basis; An upward move requires equal emphasis to protect profits at higher levels rather than just blindly chasing them. While overall leveraged exposure must be reduced, fresh buying in the coming week should be done very defensively and on a very selective note.

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 Nifty IT, Consumption, Midcap 100, FMCG and Pharma indices within leading quartiles. These groups are likely to outperform the broader Nifty 500 index relatively.

Nifty Auto and PSE index are in the weakening quadrant. We may see stock specific performance from these sectors but their overall relative outperformance may be slowing down.

Nifty PSU Bank and Energy Group remained within the lagging quadrant showing improvement in their relative momentum. BankNifty, infrastructure, metals, realty and commodity indices are also in the back quartile and may continue to underperform the broader markets.

The service sector and media index are in the improving quadrant; However, both these indices are seen slowing in their 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, Consulting Technical Analyst and Founder of EquityResearch.asia and ChartWizard.ae. Views are own)

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