With the session that ended Friday, March 29, 2019, the markets ended a remarkable month which remained one of the best out of the past several quarters. NIFTY ended the month on a strong note, posting a monthly gain of 831.40 points (+7.70). After taking a breather in earlier weeks, the liquidity gush that resulted out of unabated FII inflows lent some more strength to the markets this week. While it remained somewhat volatile, the benchmark index NIFTY50 ended with net gains of 167 points (+1.46%) on a weekly basis.
During any such liquidity-driven rally, sometimes technicals do tend to take a back seat. Given this fact, the market may continue to keep dropping hints showing the likely stalling of such rallies. The coming week is likely to see a stable start but maintain the same breadth. If the market takes a breather and shows some corrective instincts, it should not come as a surprise, as the daily charts once again remain overstretched.
There are higher possibilities that the market stalls its up-move either at the start or midway through the week. With mild signals pointing towards this possibility emerging, the levels of 11690 and 11810 will act as potential resistance points. Supports come in much lower at 11510 and 11420. The range for the coming week is likely to remain wider than normal.
The weekly RSI is 67.0954; it has marked a fresh 14-period high, which is bullish but does not show any divergence against the price. The weekly MACD is bullish and is trading above its signal line.
On the candles, an Engulfing Bullish Candle has emerged. If such an engulfing candle appears during an uptrend, which is the case with NIFTY, it indicates a potential top. The test would be to see if the next candle closes below the top of the current candle.
Broadly speaking, even if the momentum persists in the coming week, it is very much likely to show some slowdown. The out-performing stocks are likely to remain from a very specific quarter and we might see some weakening of the market breadth as well. In any case, we recommend not aggressively chasing the upward momentum. It is strongly recommended to keep trailing the stops and continue utilizing up-moves to protect profits and take money off the table. A highly cautious view is advised for the coming week.
Sector Analysis for the Coming Week
In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95% of the free float market cap of all the stocks listed.
The review of Relative Rotation Graphs (RRG) shows that there is the possibilities that the group of relative out-performers are just from select indexes, while rest of the groups may show some slowdown in the momentum. We expected relative out-performance from the Realty and Energy groups, which remain firmly placed in the leading quadrant. The BankNIFTY and IT index also remain in the leading quadrant, but their momentum is stalling along with the front-line NIFTY index.
Stable improvement in relative momentum is seen in CPSE and the Pharma and Metal Indexes; the Metal index, however, remains in the lagging quadrant while CPSE and Pharma groups are in the improving quadrant.
The Infrastructure, PSU Banks, Nifty Next 50, Consumption, FMCG and Media remain in the lagging quadrant. Despite some sporadic stock-specific out-performance, these groups may show some more stalling of momentum.
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 the NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst