In the previous weekly note, it was mentioned that the markets have formed a broad trading and consolidation range between 17950 on the higher side and 17400 on the lower side. It was also noted that, unless the NIFTY breaches the upper edge or violates the lower edge, the NIFTY will find itself trading within this defined range. On these analyzed lines, the NIFTY stayed within this range, consolidated and continued to exhibit strong inherent strength before ending at yet another lifetime high point on a closing basis. Following moves inside a 360-point range, the NIFTY has ended at a new closing high and also very near to its lifetime high point. The headline index ended with net weekly gains of 363.15 points (+2.07%).
From a technical perspective, going by the pattern analysis and analysis of the F&O data, it appears that the NIFTY is sitting on the cusp of a fresh breakout. There is a strong chance that we will see the markets moving past their previous high point. The coming week is a truncated one; we will have a long weekend with Friday, October 15th, being a trading holiday on account of Dussehra. The previous week's low point of 17452 remains crucial support to watch; if this level stands defended, we will see the markets attempting new highs in the coming week.
Volatility declined significantly; INDIAVIX came off by 9.05% to 15.65. Unless there are any major negative cues to deal with, we will see the new week beginning on a positive note. NIFTY will find resistance at the 17950 and 18335 levels. The supports come in at the 17700 and 17610 levels.
The weekly RSI is 76.03. RSI is mildly overbought; however, it remains neutral and does not show any divergence against the price. The weekly MACD stays bullish and above the signal line.
On the candle, a white body emerged. This reflects the directional consensus of the market participants on the upside. Moreover, there is also an "inside bar" that has emerged. Inside bars occur when the current or the latest bar has a lower top and higher bottom and is contained within the previous bar. This further translates that, if the NIFTY manages to move above the high of the previous bar, i.e. 17943, it will mean a fresh buy signal for the Index for the near term. However, all these should not be anticipated and confirmation must be awaited.
Again, on the expected lines, though the BankNifty underperformed, the PSU banks have started to put a good show and have demonstrated a significant improvement in their relative strength against the broader markets. So the banking space, along with select IT, Auto, PSE stocks and the broader space, are likely to show relative outperformance over the coming week. It is recommended to avoid shorts even if the NIFTY consolidates again. Against that, stock-specific buying should be made at each available opportunity while also keeping exposures at modest levels.
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.
The analysis of Relative Rotation Graphs (RRG) in the previous week showed a lot of inherent strength in the markets; the week that went by also traded much on the expected lines. The Realty and the IT Indexes continue to remain in the leading quadrant along with the Services sector. The Consumption Index has also rolled inside the leading quadrant. These groups are likely to relatively outperform the broader Index.
The Midcap Index is inside the weakening quadrant. It is seen trying to improve on its relative momentum. NIFTY Metal continues to stay inside the weakening quadrant while paring its internal strength against the broader markets.
NIFTY Commodities has rolled inside the lagging quadrant along with the Pharma Index; these two are languishing along with the metal index, which is inside the weakening quadrant. The PSU Bank Index, PSE Index, and the Auto Index are inside the lagging quadrant. However, they appear to be sharply improving on their relative momentum.
NIFTY Media Index has rolled inside the improving quadrant. Apart from that, NIFTY Financial Services, Energy, NIFTY Bank, Infrastructure, Energy and the FMCG indexes are inside the improving quadrant and may well continue to improve their relative performance against the broader markets.
Important Note: RRG™ charts show 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
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