The previous week remained much better than expected for the markets, as the benchmark Index NIFTY50 ended the week on a strong note. The week proved to be even more technically important as the NIFTY was able to move past its 50-Week MA, after having resisted that level for seven weeks.
The Index has ended the week with net gains of 350 points (+3.32%) on weekly basis. For the month of November, markets have ended with gains of 490.15 points (+4.72%) on a monthly note.
Beginning next week and thereafter, the behavior of the markets against the levels of 50-Week MA, which is presently at 10739, will be important. If the markets can defend this level, we may see the index heading towards the 11000-11200 zone. Monday is expected to be a quiet start to the week. We see possibility of some initial consolidation, but the undercurrent is likely to remain positive so long as 50-Week MA is not broken on the downside.
Relative Strength Index (RSI) on the weekly chart is 52.1675. It continues to be neutral and shows no divergence against the price. Weekly MACD remain bearish and trades below its signal line. PPO remains negative. A white body emerged, but, apart from this, no major formations were seen on Candles.
A pattern analysis on the weekly charts reveals some technically important observations. After pulling back from the 100-Week MA and the 10,000-mark, which also happens to be the important pattern support for the NIFTY, the index halted and resisted its pullback near the 50-Week MA. After resisting to this level for seven weeks, the index has now penetrated it to move higher. If this strength survives, NIFTY will test the 11,000-11,200 mark. However, this level will be one of the most important pattern resistances. It is the lower end of the 30-month long upward rising channel that the Index breached on the downside in the first week of October 2018. This is likely to pose very stiff resistance to the markets going forward.
If the markets successfully defend the 50-Week MA and attempt to inch higher, it makes more sense in remaining invested in a strategic manner. Exposures should be focused more on defensives, and on the sectors that are rotating favorably.
If the NIFTY slips below the 50-Week MA, we will see the markets pushed into some consolidation once again, though the undercurrent remains positive.
Sector Analysis 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.
Study of the Relative Rotation Graphs (RRG) shows that Services sector stocks have moved back into the leading quadrant. Along with this, the Financial Services and BankNIFTY Index too are seen inching higher in the leading quadrant. These sectors are set to relatively out-perform the broader markets in the coming week. Along with this, Realty pack has crawled into the improving quadrant after a long under-performance after improving its relative momentum. Along with the Realty pack, strong improvement in relative momentum is also seen in PSU Banks, NIFTY MID50, NIFTY Junior (Nifty Next 50), Media, Consumption and FMCG stocks. These groups are set to improve their relative performance against the broader markets. On the other hand, no major performance from Auto and Energy Indexes is expected. Pharma and IT Index are seen drifting lower in the weakening quadrant and, apart from stock specific performance, no major show on weekly basis is expected.
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