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  • Milan Vaishnav, CMT, MSTA

Week Ahead: Markets Have A Difficult Terrain To Negotiate; Will Continue To Resist At Higher Levels

The markets spent a range-bound week but remained volatile on anticipated lines while it digested the Union Budget on Friday. Much on the expected fronts, the event failed to infuse any cheer in the markets. Also, throughout the week, the NIFTY remained within a defined range and oscillated in a limited band. The entire week comprised of just 184-point band within which the index moved. After heading nowhere and paring most of the gains on the last day of the week, the NIFTY ended with a negligible increase of 22.30 points (+0.19%) on a weekly basis.

The coming week is not likely to be easy for the markets. It is unlikely that the markets will show any significant up moves apart from technical pullbacks. While having a difficult terrain to negotiate, the index will continue to struggle at overhead pattern resistance points. The Volatility Index (INDIA VIX) has further lost 12.62% over the week, and it is at present at a multi-month low of 13.06, which reflects complacency in the markets.

The coming week is likely to see the levels of 11900 and 12040 acting as strong resistance points. The supports come in lower at 11750 and 11610. In the event of any weakness, the band may get slightly broader than usual.

The weekly RSI stands at 60.9500; it remains neutral and does not show any divergence against the price. However, upon visual inspection, the RSI continues to remain trapped within a formation while forming lower tops. The weekly MACD has shown a negative crossover; it is now bearish and trades below its signal line.

A Shooting Star emerged on Candles. A shooting star formation occurs when a candle with a small real body but with a long upper shadow occurs. It is bearish and may potentially mark an intermediate top for the markets.

All in all, there are a few possibilities of the markets witnessing technical pullbacks. However, these pullbacks, if there are any, are likely to remain limited in its extent. The index will continue to find resistance above 11900 levels will continue staying vulnerable to profit taking from those levels. We recommend continuing to approach markets with a considerable amount of caution and not chase technical pullbacks to make new purchases. All up moves should be utilized for protecting profits until a sustainable breakout is achieved.

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

The review of Relative Rotation Graphs (RRG) presents a mixed picture. The Financial Services index, Services sector index, and the Infrastructure index are firmly placed in the leading quadrant and appear to be improving their relative momentum consistently. BankNIFTY index has also entered the leading quadrant. These groups collective are likely to post strong relative out-performance when benchmarked against the broader markets.

The PSE Index is in the leading quadrant as well, but it is likely to consolidate its performance from here. The Energy, IT and Realty packs are in the weakening quadrant. Out of these three, while Energy and IT packs are losing momentum, the Realty pack is attempted a bit of a U-turn; however, no stand out performance is expected from them.

The FMCG and Consumption groups have entered the improving quadrant. They are likely to improve their relative out-performance against the broader markets. The Metal index, which remains in the improving quadrant along with Auto, Media, PSU, and Pharma groups, is seen consistently losing their relative momentum against the broader markets. No significant performance is expected from these groups.

Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.

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