stock market: Dalal Street Week Ahead: Tread cautiously; PSBs, PSEs, metals likely to shine

In the previous technical note, there was a categorical mention of the importance of the 18,600 level. Keeping its head above this point was crucial for Nifty to attempt a breakout. Over the past five sessions, after some mild efforts to stay afloat and above this mark, Nifty finally gave up and slipped meaningfully below this point. In the process, it created a support zone near 18,200 levels.

The trading range of the markets modestly increased on expected lines. The index oscillated 440.95 points before it ended in the negative, with a weekly loss of 227.60 points (-1.23%).

From a technical perspective, the previous week was a bit damaging.

Nifty has officially delayed its breakout and will continue resisting the crucial 18,600 levels. Moving past this point remains critically important to reattempt any breakout by the index. On the other hand, Bank Nifty has continued to relatively outperform Nifty.

Besides this, Nifty has formed a trading range of 18,200-18,600 for the time being. The stability in the US markets will also be watched after investors digested the Fed’s decision of raising rates by 50 bps and with BoE and ECB following suit. The coming days will see the market attempting to find a bottom and attempt a mild technical pullback. Any violation of the 18,200 level will invite further weakness in the market.

The volatility, as measured by INDIA VIX rose by 4.40% to 14.07. This gauge continues to remain near its lowest levels seen this year. The coming week is likely to see the levels of 18,480 and 18,630 acting as potential resistance points. The supports will come in at 18,200 and 18,030 levels.

The weekly RSI is 59.37 and remains neutral. It does not show any divergence against the price. The weekly MACD is bullish and remains above the signal line.

The pattern analysis shows that Nifty attempted to break above the previous lifetime high point of 18,604; it went up to 18,887 but eventually slipped below this point. This means that the breakout that Nifty has attempted has failed. The level of 18,604 remains a top for the market with 18,887 as just an incremental high level. For any resumption of a meaningful up move, moving past and staying above 18,600 would be essential.

The market may stay a bit jittery as the index is likely to attempt a mild technical pullback. We may also see some shift in the relative performance of Nifty against the Bank Nifty index. The coming days are also likely to see a lack of leadership from any particular pockets of stocks or sectors. However, some stock-specific outperformance from PSU banks, Metals, PSE stocks, cannot be ruled out.

There is still no structural damage on the charts as yet and while the market remains in a trading range, profits on either side should be vigilantly protected at all levels. A cautious outlook is advised 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) shows that Nifty Commodities, Financial Services, and Infrastructure index has entered the leading . They will join the PSU Bank, Metal, Services Sector, and Nifty Bank index. These groups are likely to relatively outperform the broader Nifty500 Index.

Nifty Midcap 100 and FMCG indices continue to remain inside the weakening quadrant. The Consumption and Auto indices continue to languish inside the lagging quadrant along with Realty and Media indices. These sectoral indices are set to relatively underperform the broader markets. Nifty Energy which is inside the lagging quadrant is seen sharply improving its relative momentum. It is on the verge of entering the improving quadrant.

Nifty IT and Pharma are inside the improving quadrant. However, Pharma index is seen giving up on its relative momentum and may tend to underperform on relative terms. Nifty IT index stays in the improving quadrant as well but is seen faltering midway through the move; it is also seen giving up on its relative momentum and may tend to modestly underperform the general markets.

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 Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at
[email protected]