Nifty oscillated once again in a wide 784-point range. The headline index ended the week with a net loss of 169 points, or 1.67 per cent.
Volatility surged during the week. Volatility index INDIA VIX rose 7.47 per cent to 30.82. On the long-term weekly charts, Nifty faced resistance at the 200-week moving average, which currently stands at 10,360. This means the 200-week MA will be a crucial level to watch in the coming weeks. No sustainable up-move shall occur until Nifty moves past this level and closes above this point.
Volatility is expected to rise in the coming weeks and the trading range is expected to stay wider-than-normal.
Nifty is likely to see a jittery start to the trade in the week ahead. The 10,090 and 10,300 levels will act as key resistance, while supports will come in at 9,830 and 9,700 levels. As mentioned above, any corrective move will make the trading range wider than usual.
The weekly RSI stands at 47.25. It remains neutral and does not show any divergence against price. The weekly MACD remains bullish and trades above the signal line. A black body occurred on the wide-range candle just below the resistance point. It reinforced the 200-week moving average as an important resistance point for the near term.
Pattern analysis showed Nifty has managed to mildly penetrate the decade-long rising trend line marginally. However, it would be important to stay above that and move past important resistance points to confirm this penetration as markets internals remain weak.
The surge we witnessed over the past couple of days should never be mistaken as a new bull market phase. What we saw was a massive short squeeze when the market got oversold following sharp declines. Also, it should be noted that bear market rallies tend to remain very sharp and equally deceptive.
We reiterate approaching the market with caution and use all future upsides to make less of new purchases and more for protecting profits at higher levels as the market is not completely out of the woods. A selective approach with vigilant protection of profits at higher levels is advised for the coming week.
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 the Relative Rotation Graphs (RRG) presented some concerning developments. On one hand, a few sectors appear to have topped out. On the other hand, there are others which are yet to bottom out. The Pharma Index remains in the leading quadrant along with the Energy group. However, both the indices are heading lower as they give up some of their relative momentum.
Nifty Consumption Index is on the verge of slipping into the weakening quadrant, whereas the IT and FMCG packs have already slipped into the weakening quadrant and appear to have topped out. Nifty Commodities Index has made a soft entry in the leading quadrant.
The Auto Index, along with Media and Metal groups is in improving quadrant. They are heading northeast, and therefore, appear to be rotating favorably while steadily building up on their relative momentum. Metal appears to be the case of worry, as it is rotating sharply backward towards the lagging quadrant.
Other key indices like Bank Nifty, PSU Bank and Financial Services, Services Sector and Realty Indices have managed to halt their declines. They are improving on the relative momentum, but still remain in the lagging quadrant and they do not appear to have bottomed out completely.
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 market) 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])
