Analyzing India

Volatility and rollovers to dominate the coming week; These sectors could relatively out-perform


Though the week that went by saw lot of volatility, it remained particularly fruitless for the Markets. What was gained in the week before was given back this week. There was enough room for the Markets to pullback up to 10700. This week saw the levels of 10710 being tested but it was precisely from this mark that the NIFTY saw a sharp corrective bout. The benchmark Index ended the week losing 168.95 points or 1.61% on weekly basis though it has still been able to mark a higher top and higher bottom on the Weekly Charts.

As we approach the coming week, we expect the Markets to remain characterized with volatility and actions dominated by rollovers. Even if the Markets continue to remain in a continuing downtrend, it has shown some signs of likely technical pullback once again. We expect a stable start to the week and also expect Markets to attempt to pullback once again and attempt to re-validate the present zone as it’s base for the immediate short term.

Coming week is likely to see levels of 10430 and 10590 acting as immediate resistance zone for the Markets. Supports are expected to come in at 10250 and 10140 levels.

The Weekly RSI, which is at 36.4130 shows bullish divergence against the price. Bullish divergence on RSI occurs when the security price forms a fresh 14-period low while the RSI does not. This can be interpreted as the price resisting the downside pressures. Weekly MACD stays bearish as it trades below its signal line. No significant formations were observed on Candles.

While having a look at pattern analysis, the NIFTY, which marked its life time high at 10751, had run-up much ahead of its curve. In a sharp reversion to the mean that was seen, it suffered a equally sharp corrective downside and slipped below its 50-Week MA. The previous Week’s high was at 10710 which resisted to the 50-Week MA which stands at 10709.

Overall, even if the NIFTY continues to remain in the continuing downtrend, few of its lead indicators on the Charts remain nearly oversold. This means that in event of any further weakness in the Markets, it is less likely to breach the 10180-10200 in the worst case scenario. On the other side, we will continue to see the 50-Week MA acting as resistance again in event of an pullback. Broadly speaking, we are likely to see a volatile week ahead with Markets oscillating in a broad range struggling to form and confirm a base for the immediate short term. 

Sector rotation happening the Markets is evident and with every dip. We recommend remaining light on overall exposures and avoid aggressive shorts so long as  the base of 10180-10200 is defended by the Markets.

Sector Analysis for the coming week

In study of Relative Rotation Graphs, we compare various sectors against CNX500 which represents over 95% the free float Market cap of all the stocks listed.

While inspecting Relative Rotation Graphs (RRGs), Energy pack is distinctly seen losing momentum though it continues to remain in the leading quadrant. Pharma pack along with IT continues to remain firmly in the leading quadrant with improving momentum. In the coming week, we will see distinct relative out-performance from these sectors. With them, we will also Metal, Infrastructure and Media stocks continuing to improve their relative momentum and subsequently their relative out-performance. Public Sector Enterprises (PSE) pack too is expected to perform well. BankNIFTY is likely to consolidate along with Services sector stocks. No eye-catching performance except from few select stocks is expected FMCG and Midcaps and PSU Banks. Auto and Realty are likely to lag.

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 NIFTY Index and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst,

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Milan Vaishnav
About the author: , CMT, MSTA is a qualified Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India's most accurate "Daily / Weekly Market Outlook" -- A Daily / Weekly Newsletter,  currently in its 15th year of publication. Milan's primary responsibilities include consulting in Portfolio/Funds Management and Advisory Services. His work also involves advising these Clients with dynamic Investment and Trading Strategies across multiple asset-classes while keeping their activities aligned with the given mandate. Learn More
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