Analyzing India

Week Ahead: NIFTY Looks At Taking A Decisive Directional Call In The Coming Week


The past week saw the market remaining range-bound, oscillating inside a 250-point range and ultimately ending with a modest gain. Though the market did not take any directional call on either side, it saw significant amount of volatility within the defined range. While holding on to the 50-Week MA level, which was 10749 at close, the NIFTY ended the week with gains of 112 points (+1.04%) on a weekly basis.

Despite staying range-bound, there are couple of technically important points that should be noted. On the daily charts, the NIFTY rebounded more than once from the important support zone of 200-DMA and 100-DMA, which are important pattern support for the markets. On the weekly charts, the index has managed to crawl further above its 50-Week MA, which is 10749.

In the coming week, we expect the markets to make a decisive directional call. For this to happen, a move beyond 10950 will be important, meaning it's worth keeping a close eye on that level. Any decisive move beyond it will see the NIFTY testing the lower trend line of the upward rising channel that it breached on the downside in the first week of October 2018.

We expect the levels of 10950 and 11300 acting as immediate resistance levels, while supports are expected to come in at 10810 and 10670.

The weekly RSI is 53.0944. RSI has marked a fresh 14-period high, which is bullish, and does not show any divergence against the price, but it appears to be breaking out of a minor formation. The weekly MACD is still bullish, trading above its signal line, and remains in buy mode. A small white body emerged on candles near the support area of 20-Week MA and 50-Week MA; apart from this, it remains insignificant in the present context.

The zone of 10900-10950 might provide resistance for some more time, but any meaningful breach of those levels on the upside will provide not only a breakout from the ascending triangle formation on the daily charts, but also the impetus and strength needed for the index to make significant advancements on the weekly charts.

However, on technical grounds, unless the zone of 10900-10950 is meaningfully taken out, we suggest adopting a highly stock- and sector-specific approach. Exposures should be kept moderate unless a breakout is achieved. Shorts, however, should be avoided as the underlying intent of the markets remains buoyant.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs, we compared various sectors against the CNX500, which represents over 95% of the free float market cap of all the stocks listed.

Analyzing the Relative Rotation Graphs (RRG), it appears that the Infrastructure and NIFTY Mid 50 indexes have continued to lose momentum, despite still being in the leading quadrant. The BankNifty Index, along with the Services Sector and Financial Services index, remains in the leading quadrant and appears stable.

The PSUBank Index remains in leading quadrant, but can be seen taking a breather and showing mild signs of slowing down. The Auto index is behaving similarly, although that index is in the improving quadrant. The FMCG, Energy and IT packs are seen improving their momentum when compared against the broader markets.

CNX Metal, Pharma and PSE indexes are continuing to lose ground; apart from stock-specific performances that are yet to be seen, no major index level advancement is likely.

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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