Analyzing India

Week Ahead: Stable Start To The Week Expected; Cracks Might Appear If These Levels Are Not Defended


The past week remained quite dismal for the market, which ended in the negative on all five days. After a failed breakout on the daily charts, the NIFTY returned inside the broad trading range and subsequently drifted even lower. The index has been defending the 50-Week Moving Average for over eight weeks now but, following the previous week’s decline, it has ended marginally below this important level. It ultimately ended the week with a net loss of 219.20 points (-2.00%) on a weekly basis.

The coming days are likely to define the texture of the markets for the next couple of weeks. The index has ended marginally below the 50-Week Moving Average (which is presently at 10780) and rests on a trend line support. On the daily charts, it has bounced off the 100-Day Moving average, which is 10694.

A positive start for the week is expected as global cues remain positive. An immediate short-term technical pullback cannot be ruled out, but, if the market fails to maintain certain important levels, it risks its texture being altered for the immediate short term. The levels of 10780 and 10930 may act as resistance points on the upside while supports come in at 10620 and 10500 levels.

The Relative Strength Index (RSI) on the weekly chart is 48.1836; it remains neutral and does not show any divergence against the price. The weekly MACD remains bullish and is trading above its signal line. 

The pattern analysis of the weekly chart shows that, after pulling back from near the 10000 level, the index halted its up move near the 50-Week Moving Average. The index penetrated this level and defended it for over eight weeks. However, it has seen a minor breach of this important support, presently resting at a trend line support just below this level.

Overall, markets remain at a pattern support on the weekly charts and some technical pullback can be expected initially. However, it will be very important for the markets to move past the 50-Week MA and, subsequently, move past the 10900 level to avoid any weakness. If this does not happen, however, we might see some cracks appearing in the overall texture of the markets, in spite of any short-term technical pullback that may be seen. We recommend remaining extremely light on the overall exposure and adopting a selective, cautious approach to the markets.

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.

In our Relative Rotation Graph (RRG) analysis, it can be seen that the BankNIFTY, Consumption and Financial Services indexes, though they remain in the leading quadrant, are steadily losing their momentum. While they may remain resilient to any weakness, they are unlikely to out-perform the markets by more than a modest amount. By contrast, CNX IT, Services Sector index and the Energy pack, which also remain in the leading quadrant, are seen firmly improving their momentum and may out-perform the broader markets.

Importantly, the broader CNX100 index has crawled back into the leading quadrant. That index is being followed closely by the CNX200 index, which presently remains in the weakening quadrant but is moving up directionally towards the leading quadrant. If this improvement in momentum continues, we may also expect improvement in the market breadth going forward.

Apart from this, the Nifty Next 50, Auto, Midcap, and Media have lost momentum and are in the lagging quadrant, as is the Metal index. No noteworthy performance is expected from these groups.

The Pharma pack, though it remains in the lagging quadrant, can be seen improving its relative momentum. This, along with the CPSE Index, could show stock-specific out-performance within its components.

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,

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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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