The line charts do not show any significant activity, but the week saw wide-ranging trade. Nifty traded in an extensive range of 1,527 points. However, despite oscillating in such a wide range, the headline index ended the week with a net loss of just 85.20 points, or 0.97 per cent.
The middle of the week saw a spike in volatility as the India Volatility Index, INDIA VIX, shot up to its lifetime high. Though it cooled off by the end of the week, it still ended with a surge of 4.90 per cent at 70.39. The entire week saw a rise in the domestic market, purely on the back of short covering. The buying, at any stage, remains absent.
We have a truncated week ahead with Thursday being a trading holiday on account of Ram Navami. There are chances that the market may halt its surge and again slip into the corrective mode.
We are likely to see a weak start to the coming week, as the US markets ended in the red on Friday. The negative undertone of the global setup is likely to get extended on Monday, which may lead to a modest start to the session. The trading range may not remain as much wide as the previous week; and the 8,790 and 9,000 levels are likely to act as key resistance while supports will come in at 8,230 and 7,960 levels.
The Relative Strength Index (RSI) on the weekly chart stood at 15.79; it has marked a fresh 14-period low, which is a bearish signal. The RSI, however, remains neutral and does not show any divergence from the price. The weekly MACD remains bearish and trades below the signal line. No significant formations were observed on the candles.
Pattern analysis continued to present a grim picture. Nifty has violated a more-than-a-decade-long upward rising trend line. After slipping below the trend line, the market has shown no inclination to pull back on a weekly basis. Whenever the pullback occurs on the weekly chart, the trend line will act as a strong resistance and would limit the extent of the pullback.
There are no doubts that the market has attempted to form a base for itself. However, at the same time, it has not shown any sign of the confirmation of the attempted bottom. Unless we get a confirmation of a potential bottom formation, chasing up-moves will not be a prudent thing to do. More so when the rallies are fuelled by just short covering. We will need to support all future rallies with strong buying. Until this happens, the sustainability of any up-move will be doubtful.
Despite some aggressive measures announced by the Finance Minister and RBI, the market gave up most of its gains on the last trading day of the week. The steps taken by the government and RBI are nothing but an acknowledgment of something already evident that the economy is facing very tough times ahead.
We recommend approaching the coming week on a highly cautious note without getting carried away with the pullbacks if any.
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 index), which represents over 95% of the free float market-cap of all the listed stocks.
A review of Relative Rotation Graphs (RRG) shows a cluster of these sectors will continue to be a safe haven amidst these difficult times. Pharma, consumption, FMCG and IT are the groups that are in the leading quadrant. Apart from being placed in the leading quadrant, they are maintaining their relative momentum. These groups are likely to outperform the broader markets collectively relatively.
The Infrastructure and the Services indices are attempting to crawl back inside the improving quadrant and leading quadrant, respectively. However, there is hardly any momentum seen in these groups, and this will hinder their relative performance over the coming days.
All of the other remaining key sectors like Bank Nifty, Realty, Energy, Auto, Metals, Media, Commodities and Financial Services are likely to relatively underperform the broader market. These groups are seen losing relative momentum and drifting lower even as they remain in the weakening or lagging quadrant.
Important Note: RRGTM 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 is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])
