Nifty moved within a range of 524 points even though the volatility was not too high. The index remained above the main upper uptrend line, but pulled its supports higher. After a directionless move throughout the week, the stock index closed the session with a net loss of 32.50 points, or 0.22% on a weekly basis.
The coming week will be truncated, Wednesday being a public holiday because of Dr Babasaheb Ambedkar Jayanti. Given the current technical setup, Nifty continues to walk on the double-edged sword, just like the week before his.
Despite the relatively dynamic global trade setup, the domestic market has strong resistance in the 15000-15100 range, and it would be essential for the index to break through this range if Nifty is to attempt to break through the current channel.
The US dollar index, which has seen a sharp late retracement, is likely to see a pullback again, and this is something the domestic market will need to watch closely.
Volatility remained moderate; INDIA VIX came out 1.01% at 19.78 level. The 15,000 and 15,150 levels are likely to be key resistance points over the coming week. Support will come at 14,600 and 14,480 levels. In the event that the market takes a directional signal from either side, the trading range is likely to be wider than usual.
The weekly RSI was at the 63.13 level; it remains neutral and shows no divergence from the price. The weekly MACD remains bearish and is located below the signal line. A Doji appeared on the candles; this reflected indecision and the absence of any directional consensus among market participants.
Model analysis showed that Nifty is well above the uptrend line support drawn from the March 2020 lows. However, after scoring a high at 15,431, the index saw a corrective retracement in a small bearish channel. It also increased its supports higher, with the 20 week moving average acting almost as a proxy trendline at the 14328 level.
Overall, even when the market is not taking any directional signal, what is evident is the fact that defensive play is gaining the upper hand, as is market performance per share.
The market as a whole is relatively outperforming the frontline index; this, along with the defensive approach, will continue to dominate market performance over the coming week.
In our review of Relative Rotation Graphs®, we compared various sector indices to the CNX500 (Nifty500 index), which represents over 95% of the free float market capitalization of all listed stocks.
A review of the Relative Rotation Charts (RRGs) showed that the Nifty Commodities, Metal and Midcap100 indices continued to advance while remaining firm in the first quadrant. The Nifty PSE and Infrastructure indices appear stable in the first quadrant. All of these groups are likely to relatively outperform the market in general.
The PSU Bank and SmallCap indices continue to lose relative momentum despite being in the first quadrant. Nifty Auto Index moved further in the southwest direction while remaining in the weakening quadrant. Individual performance can be seen, but the index, as such, may not show resilient performance.
Nifty Financial Services, Nifty Services, Nifty Bank and Nifty Realty Indices are in the weakening quadrant and appear to be balancing their relative momentum against the larger market. Nifty IT Index is in the lagging quadrant, but it seems to have stopped losing momentum. A similar development was observed on the Nifty Pharma and FMCG indices. However, Nifty Media Index reduced its relative momentum as it languished in the lagging quadrant.
Nifty Energy Index is placed in the improvement quadrant. It seems to move steadily towards the first quadrant while maintaining its relative momentum compared to the larger markets.
Important Note: RRGTM charts show relative strength and momentum for a group of stocks. In the chart above, they have shown relative performance against the Nifty500 index (larger market) and should not be used directly as signals to buy or sell.
(Milan Vaishnav, CMT, MSTA is a consulting technical analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)