Analyzing India

Week Ahead: Markets Have A Difficult Terrain To Negotiate; Will Continue To Resist At Higher Levels


The markets were range-bound over the course of the week, but remained volatile on anticipated lines while digesting the Union Budget on Friday. As expected, the event failed to infuse any cheer in the markets, with the NIFTY remaining within a defined range and oscillating in a limited band. The entire week was comprised of just a 184-point band within which the index moved. After heading nowhere and paring most of the gains on the last day of the week, the NIFTY ended with a negligible increase of 22.30 points (+0.19%) on a weekly basis.

The coming week is not likely to be easy for the markets; it is unlikely that they will show any significant up moves apart from technical pullbacks. While it will have to negotiate some difficult terrain, the NIFTY will continue to struggle at overhead pattern resistance points. The Volatility Index (INDIA VIX) has lost a further 12.62% over the week and, at present, is at a multi-month low of 13.06, which reflects complacency in the markets.

The coming week is likely to see the levels of 11900 and 12040 acting as strong resistance points. The supports come in lower at 11750 and 11610. In the event of any weakness, the band may become slightly broader than usual.

The weekly RSI stands at 60.9500; it remains neutral and does not show any divergence against the price. However, upon visual inspection, the RSI continues to remain trapped within a formation while forming lower tops. The weekly MACD has shown a negative crossover; it is now bearish and trades below its signal line.

A Shooting Star emerged on Candles. This formation occurs when a candle that has a small real body but a long upper shadow occurs. It is bearish and may potentially mark an intermediate top for the markets.

All in all, there are a few possibilities where the market could witness technical pullbacks. However, these pullbacks, if there are any, are likely to remain limited in their extent. The index will continue to find resistance above the 11900 level and will stay vulnerable to profit-taking from those levels. We recommend continuing to approach the markets with a considerable amount of caution and not chase technical pullbacks to make new purchases. All up moves should be utilized for protecting profits until a sustainable breakout is achieved.

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.

Our review of Relative Rotation Graphs (RRG) presents a mixed picture. The Financial Services index, Services sector index and Infrastructure index are firmly placed in the leading quadrant and appear to be improving their relative momentum consistently. The BankNIFTY index has also entered the leading quadrant. These groups collectively are likely to post strong relative out-performance when benchmarked against the broader markets.

The PSE Index is in the leading quadrant as well, but it is likely to consolidate its performance from here. The Energy, IT and Realty packs are in the weakening quadrant. Of these three, while the Energy and IT packs are losing momentum, the Realty pack is attempting a bit of a U-turn; however, no standout performances are expected from them.

The FMCG and Consumption groups have entered the improving quadrant and are likely to improve their relative outperformance against the broader markets. The Metal index, which remains in the improving quadrant along with the Auto, Media, PSU and Pharma groups, is seen consistently losing its relative momentum against the broader markets. No significant performance is expected from these groups.

Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against the NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals. 

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst

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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