Dalal Street week ahead: Nifty may test previous highs, but won’t race past them

A white body occurred on the candles, but in the current circumstances, it does not show any significant formations. Our previous weekly note mentioned about the market not seeing any major breakdown on the downside. As a matter of fact, the benchmark Nifty50 has performed better and ended with gains of 117 points or 1.19 per cent on a weekly basis. The coming week has a relatively better setup.

Though, we do not expect Nifty to race past its lifetime high soon, we may certainly see it test its previous highs and make an attempt to move past them. In the event of any consolidation once again, the downsides are likely to remain defined, ranged and limited.

The coming week will see Nifty facing potential resistance at the 10,060 and 10,225 levels, while supports are expected at 9,780 and 9,685 levels.

The Relative Strength Index or RSI on the weekly chart stood at 67.4058 and it was neutral, showing no divergence from price. The weekly MACD is bearish as it trades below its signal line.

A white body occurred on the candles, but in the current circumstances, it does not show any significant formations.

Pattern analysis of the Nifty50 shows it is trading comfortably in the 18-month rising channel. Though there is some congestion at the current high levels, the index may continue to trade comfortably above all of its moving averages.

All in all, we expect the market to trade with a positive bias through the coming week. Any downside is likely to remain capped. We also expected some volatility to remain ingrained in the market. If the Nifty50 tests its previous highs and attempts to move past them, we are also likely to see some profit taking at higher levels and this is likely to induce volatility at higher levels. We reiterate maintaining a positive bias. One should continue stock-specific purchases and guard profits vigilantly at higher levels.

A study of Relative Rotation Graphs or RRG shows metal stocks are likely to provide leadership in the event of any rally. They will continue to relatively outperform the Nifty in the coming weeks and are likely to get company from the Energy stocks as well. Relative outperformance is also expected from broader Indices like Nifty JR (Nifty Next 50) and CNX100. We will see IT and Pharma continuing to consolidate. No major outperformance is expected from FMCG, Realty, and Auto. Realty, PSU Banks and Infrastructure stocks are expected to improve their relative outperformance and consolidate.

Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY Index and should not be used directly as buy or sell signals.

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)

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