Week Ahead: Broad consolidation to continue; Relative Rotation Graphs (RRG) shows these sectors remaining resilient

Week Ahead: Broad consolidation to continue; Relative Rotation Graphs (RRG) shows these sectors remaining resilient

The Markets had witnessed a painful start to the previous week though it recouped bulk of the damage in the last two trading days of the week. Despite this recovery, in the week that went by, the benchmark Index NIFTY ended losing 73.90 points or 0.54% on weekly basis. The levels of 11760 maintained itself as the immediate top for the Markets and it was not taken out on expected lines.

We again go into the truncated week. The coming week is a 4-day working week with Thursday being a trading holiday. Just as we had mentioned in our previous weekly note, this week as well, we do not expect the immediate past high of 11760 to be taken out too soon. Even on the Weekly Charts, the Markets have run-up little ahead of the curve and we may see mean reversion happening on the higher time frame charts.

We expect to see the levels of 11610 and 11760 acting as immediate resistance for the Markets. Supports come in at 11320 and 11250 zones. The range is expected to remain little wider given the situation that the Markets may take some breather after the recent up move.

The Weekly RSI is 68.7014 and it has just moved below from a topping formation and this is bearish. It remains neutral to the price showing no divergence. Weekly MACD stays bullish while trading above its signal line but it is seen flattening its trajectory.

On the Candles, a Hanging Man occurred. This is exactly opposite of a hammer and it usually occurs after a rally. This is seen on the Weekly Chart of NIFTY and this may again increase the possibility of the level of 11760 continuing to remain as an intermediate top for the Markets.

Overall, though we have seen strong up moves in the last two sessions of the previous week, this is still not the time to get carried away with it. In a broader sense, we see the possibilities of the corrective intent of the Markets continuing to persist. The up moves have been more because of short covering and it would be important to see that this gets replaced with fresh purchases. Again, we do not see any major downsides for the Markets, but it is likely to continue to remain in a broad trading range. We recommend continuing to remain highly stock specific and effectively rotate the sectors as chasing the sectors that once led the previous rallies may not help. Cautiously positive outlook is advised for the coming week.

In study of Relative Rotation Graphs, we compare various sectors against CNX500 which represents over 95% the free float Market cap of all the stocks listed.

In the coming week, ENERGY stocks distinctly outperforming the general Markets on relative basis. Though PHARMA and PSUBanks too remain in the leading quadrant, they are somewhat sideways though might continue to relatively outperform. After this, we are seeing distinct improvement on the momentum front the METAL, INFRA, and MIDCAP stocks. Though they may not outrightly out-perform the Markets on relative basis, but their performance is certainly likely to improve over coming days. Consumption stocks, FMCG pack, MEDIA, AUTO and BankNIFTY continue to lose on momentum front and no stand-out performance is expected from these packs apart from stock specific sporadic movements. NIFTY Junior (NIFTY Next 50) too is seen improving its relative momentum and now it is in improving quadrant. CNX100 and CNX200 along with Financial Services pack continuing to weaken when benchmarked against CNX500.

Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY Index and should not be used directly as buy or sell signals.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst
 (MTA, USA / CSTA, Canada / STA, UK)  | (Research Analyst, SEBI Reg. No. INH000003341)
Tel: +91-70164 32277  | www.EquityResearch.asia | milan.vaishnav@equityresearch.asia

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