Week Ahead: Upsides May Remain Limited; Corrective Moves Likely From Higher Levels
Following unabated up move over last several days, the markets finally took some breather on the last trading day of the week. After the session on Friday, the NIFTY has displayed visible signs of consolidation creeping in to the markets which had got steeply overbought on the daily charts. As the week ended, it has also highlighted the major resistance area for the markets on the weekly chart that come in form of the lower trend line of the 30-month old upward rising channel that the NIFTY broke on the downside.
In our previous weekly note, we had categorically mentioned to put prudence before greed and avoid blindly chasing the up moves. The NIFTY saw paring of over 140-points from the week’s high to end the week with net gain of just 30.05 points (+0.26%).
The markets, on both daily and weekly charts, have shown very evident signs of fatigue. In the coming week, we expect minor corrective moves to persist and the zone of 11580-11620 shall act as important resistance zone for the markets. The expiry of the current derivative series in the coming week will also bring in volatility to the trade.
We expect the levels of 11620 and 11690 to act as resistance points. Supports are expected to come lower at 11420 and 11320 zones.
The weekly RSI is 64.2665 and it has marked a fresh 14-period high which is bullish. It does not show any divergence against the price. The weekly MACD is bullish and continues to trade above its signal line.
A Doji occurred on the candles. This behavior of the markets along with a large black body of the daily chart shows that the NIFTY is finding it difficult to maintain its momentum at higher levels. This also forms a base of a potential corrective move that we might see over coming days.
The pattern analysis of the weekly chart points towards emergence of a potential resistance area. This comes in the form of the lower trend line of the 30-month long upward rising channel that the NIFTY breached on the downside in the first week of October 2018.
All in all, we suggest ignoring all up moves, if we get any, in the coming week. It is strongly suggested that all future up moves should be utilized to lighten the exposures. While maintaining exposures at modest levels, all profits should be vigilantly guarded at higher levels. We will also see volatility creeping into the markets again. A very cautious outlook is advised for the coming week. The NIFTY has ended outside the upper Bollinger band. But keeping in mind the other pieces of evidence present on the chart, there are higher chances of the NIFTY getting pulled back inside the band.
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 seen that the Realty Index has moved further ahead in the leading quadrant and along with the Energy Index, it remains firmly placed to continue out-performing the general markets. Along with this, the IT Index too remains in the leading quadrant, but it is seen taking some breather and consolidating at current levels. This group too is expected to relatively out-perform the broader markets.
BankNIFTY, along with CNX Services Sector Index is seen started to drift while stalling its momentum. The PSUBank, FMCG, Consumption, CNX Financial Services, NIFTY MID 50 and NIFTY Next 50 index are seen losing their relative momentum and drifting lower. The Auto and Media index too are seen faltering after some sporadic moves in the previous week.
The Pharma and CNX PSE index have move in the improving quadrant and these groups are expected to further consolidate their respective positions and improve relative performance against the broader markets along with the Metals Index which is also seen improving its relative momentum, though it currently remains in the lagging quadrant.
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)