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  • Milan Vaishnav, CMT, MSTA

Week Ahead: Moving Past 50-Week MA Remains Imp; RRG Shows Likely Out-Performance From These Sectors

Updated: Feb 23, 2019

In our previous weekly note, we had mentioned about the NIFTY slipping below its 50-Week Moving Average and had highlighted the importance of this important weekly level. The first half of the week saw continued weakness in the markets, however, the middle of the week saw the NIFTY rebounding after eight consecutive days of decline. This pullback halted exactly at the 50-Week MA which is presently at 10791.97. The benchmark index ended at 10791.65, up by 67.25 points (+0.63%) on weekly basis.

The coming week will remain as important as the previous week as the NIFTY is yet to navigate critical resistance levels on both daily and weekly charts. On daily charts, the index trades below 50 and 200 DMA; on the weekly charts, it is yet to move past 50-Week Moving Average again after slipping below it.

As evident from the charts, over past 14 weeks, the NIFTY has been trading sideways in a defined congestion zone. We expect a stable start to the week and see NIFTY attempting to inch higher. The coming week is also expected to be more volatile as we have expiry of the current derivative series. Speaking from weekly point of view, moving past and remaining above 10790 on closing basis will be important for the markets. Unless this happens, it remains vulnerable to sell-offs at higher levels.

We expect the levels of 10850 and 10990 to act as immediate resistance points. Supports come in at 10580 and 10510.

The weekly RSI is 49.9193; it remains neutral and shows no divergence against the price. The weekly MACD remains bullish and trades above its signal line. A candle with a long lower shadow emerged; in the present context, it remains less significant.

The pattern analysis of the weekly charts shows NIFTY trading in a defined range which has become a congestion zone for the markets. In the given situation, moving past the 50-Week MA and sustaining above it will be of paramount importance for the markets. Unless this happens, we will remain vulnerable to some weakness creeping in, which would be capable enough to change texture of the markets for the near term. As of now, there are no structural damage on the charts and with the market breadth improving, we recommend refraining from creating shorts. Range bound moves in the markets should be utilized to make select purchases and profits should be protected at higher levels.

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) in our previous weekly note, we had mentioned about possibility of market breadth improving as the broader CNX100 index has crawled in the leading quadrant. In the previous week as well, CNX100 has advanced further in the leading quadrant and it is being followed closely by CNX200 index. However, both indexes need their momentum to get stronger to lend more potency to market breadth.

Apart form this, Energy and IT packs, which remain firmly in the leading quadrant while improving their momentum. These groups are likely to out-perform the broader markets. CNX Service index too is likely to contribute to some relative out-performance as it remains in the leading quadrant. The BankNifty and Financial services are seen steadily losing their momentum despite remaining in the leading quadrant.

The NIFTY Auto, MID50, NIFTY Next 50 (Nifty Jr), CNXMID and MEDIA packs are seen sharply losing their momentum. These groups are set to relatively under-perform the general markets. Some slowdown is also witnessed in FMCG, Consumption and Infrastructure packs.

While remaining in lagging quadrant, Pharma, Metal and CPSE indexes continue to improve on the relative momentum front and are likely to strengthen their position in the coming week.

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)