By Milan Vaishnav
The domestic equity market extended its corrective move to the sixth week, as the benchmark Nifty50 ended yet another week on a negative note, losing 231 points or 2.21 per cent on a weekly basis.
The week was important from the technical point of view, as the Nifty tested its 200-DMA twice and managed to defend it on the daily chart. On the weekly chart, the market continued in the 27-month-long upward rising channel, showing no breach of any kind.
As we go into a new week, the market remains on the tenterhooks. The market has shown half-hearted signs of finding a base for itself at current levels. Friday’s strong closing is certain to give a positive start on Monday.
The crucial thing is that we need to sustain above the 10275-10300 zone after a positive start. It would be crucial to observe if the market maintains the likely positive start that it may get on Monday.
On the lower side, a strong support exists at 10140 and 10040 levels and these are not likely to be breached. On the higher side, we may see resistance coming in at 10390 and 10465 zones. The range for this week might remain wide.
The Relative Strength Index or RSI on the weekly chart stood at 47.1613 and it has marked a fresh 14-period low, which is a bearish sign. It does not show any divergence against the price. The weekly MACD stays bearish while trading below its signal line.
A falling window emerged on the candles. This is usually a gap and implies continuation of downsides. However, this cannot be read in isolation, and in the present context, it may not have any significant negative impact.
Pattern analysis paints a reassuring picture showing no structural breach by the market because of the present corrective move. It continues to remain in the 27-month-long upward rising channel as evident on the charts.
Overall, we need to keep our fingers crossed in the week ahead. Strong global markets will provide us a footing for a likely positive start but it would be equally crucial to see if we are able to sustain it and capitalise on it. Given the fact that the 200-DMA stays defended on daily chart and given the fact that the 27-month-long upward rising channel on the weekly chart continue to remain intact, we believe that likely stronger opening should not be used to create shorts again. We are perhaps, of course subject to confirmation, going in the time again when we start buying the weaknesses rather than selling the strength. Positive caution is advised for the coming week.
The Relative Rotation Graphs, or RRG, for the week paints a little challenging picture. It continues to dominantly remain in the leading quadrant and it expected to relatively outperform the markets. Apart from that, we will see sectors like energy, financial services and Bank Nifty attempt to improve their momentum though they may not distinctly outperform the general markets.
Along with these sectors, select stocks from FMCG, metas and services sectors may attempt to put good performance. However, though not significant, but some improvement in momentum is also expected from broader indices. Apart from this, no eye-catching show is expected from Realty, Smallcaps, PSE stocka, pharma, Infrastructure and auto universe.
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, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at firstname.lastname@example.org)