In the week before this one, looking at the quantum of the fresh short positions in the system, a strong possibility of the short-covering led rally was expected. The previous week saw a strong rally, obviously fueled by short-covering, which led to weekly gains of 385.10 points after a wide 1000+ points trading range. This week was no different. Though the markets oscillated in a narrower range of 789 points, that was still wider than usual. The NIFTY had a strong upward directional bias throughout the four-day short trading week, while it ended on a strong note. The short covering was the only fuel that fueled the rally; the headline index ended with strong gains of 656.60 points (+3.95%) on a weekly basis.
The markets also reacted positively to the Federal Reserve's interest rate hike. The Fed intended to raise the interest rate by 50 bps, but the geopolitical tensions, which continued to stay fluid, led the Fed to raise the rate by just 25 bps. This was widely expected by the markets as well. Thursday's session saw a significant quantum of Put writing taking place at 17200 levels. While the highest Call OI accumulation is at 17300, the second-highest Call OI accumulation is seen at 17500 levels. In all probabilities, the NIFTY may see a higher opening on Monday, but, after that, it may see some consolidation and profit-taking happening at higher levels. The level of 17300-17500 is a crucial zone that needs to be watched.
Though a positive opening to the week is expected, the NIFTY will find probable resistance at the 17390 and 17500 levels. The supports come in at the 17200 and 17010 levels. The trading range will continue to stay wider than usual.
The weekly RSI is 52.25; it shows a mild bearish divergence against the price. The weekly MACD remains bearish and continues to stay below the signal line. A strong white body emerged on the candles. This reflected a strong upward directional bias that persisted through the week.
The pattern analysis of the weekly chart shows that NIFTY had halted its technical pullback at 50-Week MA, which presently stands at 16654. The index has not only managed to penetrate the 50-week MA, but has also moved above the upward rising trend line, which was earlier support that was violated by the NIFTY. Right now, the index has again halted near 20-week MA, which is at 17331.
Over the past two weeks, the NIFTY has pulled back nearly 1616-odd points from the low point of the previous week. It should not come as a surprise if the NIFTY consolidates after an expected positive opening on Monday. It is strongly suggested that, from now on, upside moves should not be chased; instead, they should be used to take some money off the table and protect profits. There is also a strong possibility that the traditionally defensive pockets like FMCG, Consumption, Pharma and IT do better. Overall, while staying highly cautious at higher levels, profits should be vigilantly protected, while keeping leveraged 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.
Our analysis of Relative Rotation Graphs (RRG) shows the NIFTY Bank, PSE, PSU Bank and Metal Indexes are placed inside the leading quadrant. Except for Metals, these indexes are seen consolidating and slightly paring on their relative momentum. The Nifty Auto Index is also inside the leading quadrant; however, it appears to be very sharply giving up on its relative momentum and moving towards the weakening quadrant. NIFTY Commodities and the Energy Indexes are firmly placed inside the leading quadrant; and these groups will continue to relatively outperform the broader markets.
NIFTY Media and the IT Indexes are inside the weakening quadrant. They appear to be improving on their relative momentum and attempting to consolidate their position.
The Nifty Realty Index is placed in the lagging quadrant; it appears to be improving on its relative momentum. The MidCap 100 Index continues to languish inside the weakening quadrant. The Consumption index is inside the lagging quadrant as well; however, it is seen improving on its relative momentum.
The FMCG and the Financial Services services indices are inside the improving quadrant and expected to continue putting up a resilient show in the coming week.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
www.EquityResearch.asia | www.ChartWizard.ae
