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  • Milan Vaishnav, CMT, MSTA

Week Ahead: Truncated Short Week To See Capped Upsides; Charts Offer Important Signals To Read

This was the second week in a row when the Indian equity markets did not make any significant directional move. The week that went by remained particularly volatile as the markets oscillated back and forth on each side in a defined range while it continued to resist to the lower trend line of the rising channel that it has breached on the downside in late 2018. While heading nowhere, the benchmark index NIFTY50 ended with net weekly loss of 22.50 points (-0.19%).

The coming week is a very short 3-day week. Wednesday and Friday are trading holidays on account of Mahavir Jayanti and Good Friday respectively. Looking beyond the coming truncated week, the markets are ringing some serious warning bells which deserve a special scrutiny.

The Volatility Index – VIX, which is also referred to as the “fear gauge” or “fear index” typically has strong negative correlation with the benchmark index. However, during recent weeks, this relation has been thrown off-balance and we have seen that both NIFTY and VIX are rising together. Whenever this has happened in past, it has spelled trouble for the markets in the following weeks. This week, the VIX has gained 14.56% to 21. Presently, the VIX is at levels seen before only in early 2016.

The level of 11760 will continue to pose stiff resistance to the markets going ahead in the coming week. Supports will come in lower at 11550 and 11410.

The weekly RSI is 66.9758; it remains neutral and shows no divergence against the price. The weekly MACD is bullish and trades above its signal line. An Engulfing Bearish candle has occurred. Though this is not a large candle but certainly depicts discomfort of the market participants at current levels.

We have seen defensive sectors rotating favorably over past couple of days. This trend is likely to continue in the coming week as well. We suggest staying away from creating any aggressive positions and remain moderately invested in the defensive stocks. Given the ongoing general elections, we will see markets continuing to exhibit a tentative approach over coming days. A 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.

The review of Relative Rotation Graphs (RRG) shows that in the coming week bulk of the action is likely to remain concentrated among Pharma, IT, Media, Metal and Realty packs. While Realty remain firmly placed in the leading quadrant, the remaining groups are in the improving quadrant. However, their relative momentum remains strong and intact when compared to broader markets. The Auto index has crawled into the improving quadrant.

The Energy index is placed in the leading quadrant, but it is seen losing its relative momentum along with the BankNifty Index. The IT pack has also slipped in the weakening quadrant. The PSU Bank group is seen sharply reversing its trend and improving its momentum, but it still remains in the weakening quadrant along Services and the Financial Services Index.

Apart from this, Consumption and FMCG groups continue to slide further in the lagging quadrant. The Infrastructure index also remain in the lagging quadrant, but it is seen sharply improving its relative momentum when bench-marked against the broader markets.

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: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)