While few sectors are likely to distinctly outperform, the slightest of the negative trigger will see the Nifty test its previous supports. In our previous weekly outlook, we had mentioned that there are all the possibilities of the Nifty not racing towards its highs too soon and not showing any major downside as well. Very much in line with that analysis, the benchmark Nifty50 spent the entire week that has gone by trading in a very narrow and defined range and not making any meaningful headway.
It ended the week with a net loss of 39.60 points, or 0.40 per cent, on a weekly basis. We expect a subdued start to the coming week on Monday and expect the index to remain rangebound through the week. We will see Nifty struggle to scale fresh highs. While few sectors are likely to distinctly outperform, the slightest of the negative trigger will see the Nifty test its previous supports.
The coming week will continue to see the 9,990 and 10,110 levels act as immediate resistance, while supports are expected to come in at 9,830 and 9,750 levels.
The Relative Strength Index or RSI on the weekly chart stood at 65.4614 and it remains neutral showing no failure swings or any divergence against price. The weekly MACD continues to remain bearish even as it traded below the signal line. No divergence was observed in the last five periods. No significant formation was seen on the candles.
Pattern analysis shows the market has been trading in the upper range of the long 18-month channel that it has formed. Given the overall structure of the weekly charts and the pattern, the Nifty is currently seen in a minor congestion area, showing small signs of exhaustion.
Overall, the coming week is also likely to see the market remain volatile. The Nifty50, if seen on the daily charts, is currently in the longest congestion period given the number of days it has been trading in a narrow range. The 9,860 and 9,820 levels will remain critical for the market and any breach below this level is likely to cause short-term disruptions in the primary trend. As of now, the primary trend remains intact. However, we would strongly recommend remaining extremely stock-specific as select stock-specific performances are likely to dominate the week.
A study of Relative Rotation Graphs or RRG shows the coming week will see distinct outperformance from the Metals pack. It is likely that select stocks from Nifty Junior (NIFTY Next 50), Midcap and Energy pockets will join the party in relative stock-specific outperformance. No major improvement is likely in pharma, FMCG and Bank Nifty, which are likely to remain rangebound.
PSU Banks and Media stocks will continue to show improvement in momentum in the coming week, while realty and IT will continue to show relative underperformance.
Important Note: RRGTM charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against the 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. He can be reached at firstname.lastname@example.org)