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  • Milan Vaishnav, CMT, MSTA

Week Ahead: Tentative Mood Likely To Persist; These Select Pockets Are Likely To Out-Perform

Updated: Mar 9, 2019

The week that went by fared better than the previous week as the markets went on to post some more gains. Major part of the weekly gains was posted in the first half while the last two sessions were spent amid consolidation. In a 4-day week, the headline index NIFTY50 ended with weekly gains of 171.90 points (+1.58%).

NIFTY that was deliberating around its 50-Week Moving Average for over 15-weeks, is now seen attempting to inch higher. However, it is concerning to see divergent signals on the daily and weekly charts. NIFTY is seen attempting to move out of the 15-week old congestion zone on the weekly chart, but on the daily chart, it is seen weary at higher levels and much prone to consolidation over immediate short term.

We expect a stable start to the week. However, given the present structure on the daily chart, we will see some more consolidation creeping into the markets, at least in the beginning of the week. We will see NIFTY resisting to the immediate past high point on the weekly chart around 11110 and in event of any consolidation from higher levels, the 50-Week MA, which is presently at 10826 will come in to lend support.

The coming week is likely to see the levels of 11110 and 11200 acting as resistance points. Supports come in at 10826 and 10700 level. The trading band for the coming week might remain wider than usual.

The weekly RSI is 55.9864. It has marked a fresh 14-period high which though it does not show any divergence against the price. The weekly MACD continues to trade above its signal line. Apart from a white body that emerged on candles, no significant formations were observed.

The pattern analysis of the weekly charts shows the NIFTY attempting to move out of the 15-week old congestion zone that it has created for itself. However, it has not moved out comprehensively and has got lot of efforts to make before it breaks out from this zone.

All and all, though the NIFTY remains comfortably poised on the weekly charts as of now, it is showing very evident signs of slowing down on the shorter time frame charts. We expect this indecisive mood of the markets to persist in the coming week. NIFTY continues to remain vulnerable to selloff from higher levels. The vulnerability of the markets witnessing the profit taking bouts increases as the volumes over past couple of days have remained lower than average. The market breadth too, is seen not as strong as it should be. We suggest remaining selective while approaching the markets as good performance is likely to remain limited in only select pockets of stocks.

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 evident that the CNXIT and CNX Energy indexes will continue to out-perform the broader markets as they are seen strongly advancing while remaining in the leading quadrant. The CNX100 index is also crawling in the leading quadrant but not moving much. This group may not distinctly out-perform but may help in keeping the deterioration of market breadth into check.

Apart from this, the Pharma, PSE and Metal group is seen continuing to improve on the momentum front. These groups are expected to post resilient performance in the coming week. The CNXREALTY index is also seen attempting to enter the leading quadrant. It will need improvement in its relative momentum to put up with the expected out-performance against the broader markets.

Apart from this, the groups like Bank NIFTY, Infrastructure, NIFTY MID50, Auto, Financial Services, Consumption, FMCG along with PSUBanks are seen drifting lower and steadily losing on their momentum while remaining placed at differently places on the RRG.

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)