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  • Milan Vaishnav, CMT, MSTA

Coming Week: Taking Out Imp Levels Necessary; These Pockets May Relatively Outperform

It was yet another week wherein the markets took no directional call and ended with modest gains. The NIFTY continued to remain within a broad defined range all throughout the week and saw some gains towards the end which halted near the 200-DMA. On the weekly charts, the index continued with its sideways move and ended above 50-Week Moving Average once again which is presently at 10805. While taking no major directional call, the NIFTY ended with gains of 71.85 points (+0.67%) on weekly basis.

As mentioned in our previous weekly note, the NIFTY is flirting with its 50-Week MA for over 15 weeks now and is engaged in a prolonged sideways move which has resulted into formation of a congestion zone for the index.

We expect a stable start to the week that begins Tuesday after an extended weekend. Having said this, it is important that the NIFTY makes a decisive move on the weekly time frame charts in order to avoid any weakness from creeping in because of the prolonged sideways movement. On the daily chart as well, the NIFTY is yet to make any decisive move and continues to remain in a broad trading range.

The coming week is expected to remain range bound with the levels of 10960 and 11080 actin as immediate resistance points. Supports come in at 10710 and 10610 levels.

The Weekly RSI is 51.7778; it remains neutral and shows no divergence against the price. The weekly MACD is bullish and trades above its signal line. It is important to note that the trajectory of this indicators is so flat that despite remaining above its signal line for over 9 weeks, NIFTY has registered gains of just 0.03% during this time frame. No significant formation has emerged on candles.

The pattern analysis of the weekly charts shows a narrow congestion zone being formed around the 50-Week Moving Average. The NIFTY is seen moving around this important area for 15 weeks and has failed to make any directional move on either side. The prevailing geopolitical tensions across the borders have de-escalated and this may result into some fewer volatile moves in the markets. However, unless the NIFTY makes a decisive move beyond the 50-Week MA, it continues to remain vulnerable to profit taking bouts from higher levels. Any slip below this level again might result into some more weakness for the markets.

We recommend continuing to adopt highly stock specific approach to the markets in the coming week. Exposures should be kept at modest levels the markets remain particularly trend-less in the immediate short-term time horizon. Cautious outlook is advised for the coming week.

In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95% the free float market cap of all the stocks listed.

While reviewing Relative Rotation Graphs (RRG), it is observed that the Energy and the IT pack along with the CNX100 and CNX200 are likely to relatively out-perform the broader markets. The Energy and IT indexes are seen advancing firmly in the leading quadrant. The CNX 100 index, though it remains in the leading quadrant, needs to step up its momentum to make larger moves. The CNX200 index remain in the weakening quadrant but it is also seen moving higher and attempting to enter the leading quadrant. The CNX Service sector index is also seen the leading quadrant but it is not seen making any major moves.

The rest of the indexes such as NIFTY Auto, BankNIFTY, Realty, PSUBanks, Small Caps, NIFTY MID50, CNXMID, INFRA, Consumption, NIFTY Next50 and Financial Services Index are seen steadily losing on their relative momentum front while being positioned at different places on the Relative Rotation Graph.

The Metal, Pharma and PSE packs are seen moving higher and improving their momentum while being placed in the lagging quadrant. These groups may display good resilience to downsides, if there is any, while consolidating their position through offering stock specific performances.

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 NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (MTA, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)