Analyzing India

Week Ahead: Buoyant NIFTY Has These Things to Guard Against; RRG Chart Shows Mixed Sectoral Setup


For the third week in a row, the Indian equity markets continued with their up move. The week that went by saw the NIFTY50 index scaling a fresh high and also ending at its new lifetime high point. The Indian headline index is now placed in uncharted territory. The NIFTY traded in a 359-point range, the markets maintaining their trajectory throughout the week barring few incidents of consolidation on the daily charts. The Index went on to end the week on a strong note; the NIFTY50 gained 234.60 points (+1.52%) on a weekly basis. If we sum up the gains, the Index has piled up total gains of 992.45 points over the past three weeks.

The price action has seen the support levels of NIFTY being dragged higher to 15450-15500 levels. For the current upside to sustain, it would be crucial for the index to keep its head above these points. While the NIFTY consolidated, the Options data threw interesting insights. The levels of 15700, 15750, and 15800 saw a significant amount of call writing of 1.4 million, 1.2 million, and 1.6 million, respectively. The level of 15700 holds the highest Call Open Interest as of now at 3.5 million shares. This is likely to keep upsides limited in the coming week. The volatility continued its southward move; INDIAVIX came off by 8.40% to 15.9400, which remains the lowest level of recent months, seen only in February 2020.

The coming week is likely to see the levels of 15750 and 15820 as resistance levels. The supports will come in at the 15500 and 15410 levels. In the event of any consolidation or a corrective move, the trading range is expected to get wider than usual.

The weekly RSI is 68; it has made a new 14-period high, which is bullish. RSI, however, is neutral and does not show any divergence against the price. The weekly MACD is bearish; it is currently below the signal line. However, the sharply narrowing slope of the histogram hints at a likely positive crossover in the coming weeks. A strong white candle emerged; it reflects the directional consensus that prevailed throughout the week among the market participants.

Going by the technical setup, there are no signs of any weakness on the charts if they are read in isolation. However, what we cannot ignore is the lowest value of the VIX that we are seeing at present; these levels were previously seen only in February 2020. Such prolonged periods of low volatility are often followed by highly volatile periods. This may cause the markets to either consolidate or see measured corrective move at higher levels. This is one of the major things that market participants will need to guard against over the coming weeks. The markets are likely to see defensive sectors finding favor, as a distinct improvement of relative strength is seen in these pockets. A cautiously positive 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 that the IT Index has rolled back inside the improving quadrant from the leading quadrant. The NIFTY Pharma is the only index which is firmly placed inside the leading quadrant. The Metals, SmallCap and the Commodities Indexes are inside the leading quadrant, but they appear to be taking a breather and paring on their relative momentum against the broader markets.

The NIFTY PSE, Infrastructure and MidCap 100 Indexes are inside the weakening quadrant. The PSUBank Index is also inside the weakening quadrant, but is seen trying to consolidate its performance.

The NIFTY Services Sector, BankNifty, Realty, Financial Services and Auto Indexes are inside the lagging quadrant. However, they have stopped rotating southwest and appear to be trying to improve their relative momentum against the broader NIFTY500 Index. Only the Energy Index is seen languishing inside the lagging quadrant.

The NIFTY Consumption and FMCG Index are inside the improving quadrant. However, they appear to have stalled their move. NIFTY Media is also inside the improving quadrant and appears to be maintaining its northeast direction of the rotation.

The coming week is expected to see selective outperformance from Auto, Financial, Pharma and Consumption pockets.

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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