Week Ahead: NIFTY Set To Have A Jittery Days Ahead; RRG Charts Show No Major Change In Sectoral Setup

Week Ahead: NIFTY Set To Have A Jittery Days Ahead; RRG Charts Show No Major Change In Sectoral Setup

The Indian equity markets were just consolidating and trying to find a base for themselves of the first four of the last five trading sessions. However, it was the last session of the week on Friday that did much of the undoing for the markets. Even though there were no cues from the US following a Thanksgiving Holiday, the Asian markets tanked on Friday following renewed Covid fears. Indian markets were no exceptions; they ended up on a very weak note on Friday. Adding up to the five trading days, the Indian markets had an 800-point trading range. The NIFTY finally close with a net loss of 738.35 points (-4.16%) on a weekly basis.

The NIFTY has shown one of its worst weekly performances over the recent past. The Index has not only dropped off the 20-month rising trend line that began from the lows of March 2020 and joined the subsequent higher bottoms, but it has also marked and confirmed the point of 18600 as a top for the markets. The fear and the extent of knee-jerk reaction were visible as the volatility surged through the roof. The INDIAVIX spiked by a huge 40.01% on the weekly basis to 20.8000. The technical landscape stays precarious; on the daily chart, the NIFTY has tested 100-DMA. On the higher weekly time frame, the Index has ended up testing the 20-period MA. In either case, this may not have distinctly disrupted the primary trend, but has certainly pushed the markets in a broad trading range.

The coming week is expected to be jittery; the trading range is likely to stay wider than usual. The levels of 17300 and 17480 will act as immediate resistance levels; the supports come in at 16900 and 16750.

The weekly RSI is 52.38 It has marked a new 14-period low and shows a bearish divergence against the price. The weekly MACD is bearish and trades below its signal line. A large black candle emerged; it reflects a directional consensus of the market participants on the downside.

The pattern analysis shows that after slipping below the upward rising trend line drawn from the lows of March 2020, the Index resisted this pattern resistance for two weeks and has finally resumed its downtrend. This now marks this rising trend line as a strong pattern resistance for the markets whenever a technical pullback occurs. The broader pattern analysis reveals that unless taken out convincingly, the NIFTY has 18600 as a potential top in place.

All and all, without any doubts, there are greater chances that the coming week may stay jittery as the markets grapple to find a bottom for themselves. Also, we are expected to see that the stocks/sectors with improving Relative Strength may show resilience, but at the same time, we are likely to see renewed interest in the traditionally defensive sectors like Pharma, FMCG, and Consumption. It is recommended that leveraged positions on either side should be avoided. A highly cautious and very selective approach 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.

The analysis of Relative Rotation Graphs (RRG) does not show any noticeable change in the sector setup that existed in the previous week. PSU Bank Index, along with NIFTY Energy, Midcap 100, PSE, Realty, Media, and Infrastructure continues to remain inside the leading quadrant and are set to relatively outperform the broader NIFTY500 Index.

Small-Cap 100 Index and NIFTY IT Index remain inside the weakening quadrant; the SmallCap 100 index is seen sharply improving its relative momentum. NIFTY Services sector index has also slipped inside the weakening quadrant.

NIFTY FMCG continues to languish inside the lagging quadrant. Apart from this, the Commodities and Metal Index are also inside the lagging quadrant; however, they appear to be consolidating on their relative momentum. NIFTY Pharma Index, despite being in the lagging quadrant, appears to be sharply improving its relative momentum against the broader markets.

The Auto index and Banknifty are inside the improving quadrant of the RRG. Financial Services Index is also inside the weakening quadrant; however, it appears to be rapidly paring its relative momentum 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

www.EquityResearch.asia | www.ChartWizard.ae

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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.
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