Analyzing India

Week Ahead: Intermittent Pullbacks Likely; Broader Structure Continues To Remain Tentative


The past week generally went along the anticipated lines. The broader structure of the markets continued to be weak; it faced severe volatility during the past trading days and faced heavy selling pressure at higher levels. After a thoroughly volatile week, the headline index ended with a net loss of 218.45 points (-1.98%).

The rounding top that appeared on the daily charts exists on the weekly charts as well, making the pattern fractal in nature. The NIFTY has shown a minor breach of the neckline of this formation, ending a notch below its 100-Week MA (presently at 10879). The base and the range of the NIFTY has shifted lower; all technical bounces will find resistance in the 11000-11060 zones.

The week may see a quiet opening to the trade. The markets may make some attempts to stabilize and defend its most recent bottom while attempting a few pullbacks; the broader setup, though, remains structurally bearish. The Volatility Index, INDIAVIX rose to 17.35 after climbing 4.20% over the week.

The Relative Strength Index (RSI) on the weekly chart is 36.47; it has made a fresh 14-period low, which is bearish. The RSI does not show any divergence against the price. The weekly MACD continues to stay bearish while trading below its signal line. Apart from a black body, no significant formations appear on the candles.

The Bollinger Bands are seen widening on the weekly charts. The widening of the bands following the down move signifies the intensity of the bearish sentiment that the markets are presently dealing with. It is also important to note that the NIFTY ended below its lower Bollinger band. Though a temporary pullback inside the band can't be ruled out, it has raised the possibility of a downward breakout over the coming days.

With the upper base of the markets shifting significantly lower, the up moves will find themselves getting restricted up to 11000 levels. In the event of the NIFTY getting any technical bounce, it will encounter stiff resistance near the 11000-mark.  All such pullbacks, if they occur at all, should be utilized to protect profits on long positions. Overall, exposures on either side should be kept modest - a 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 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

Our review of Relative Rotation Graphs (RRG) shows just a handful of sectors that are expected to remain resilient and relatively outperform the broader markets. We will see strong relative outperformance from FMCG and Consumption indexes, which are in the improving quadrant and heading higher with sustained improvement in the relative momentum. Along with this, we can also see relative outperformance from the IT Index, which has moved into the leading quadrant. Some isolated stock-specific moves can also be expected from the Pharma group.

A few key sectors like Services, Financial Services, PSU Banks, Realty, BankNifty, Metal and Infrastructure are seen steadily losing their relative momentum, while the Energy and Media groups are likely to attempt to consolidate and remain within a defined range.

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 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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