After five weeks of significant pullback, the domestic equity market took a breather during the week gone by on the expected lines. The benchmark Nifty50 halted its upward move, moved in a range before ending the week with a net loss of 74.05 points, or 0.69 per cent.
We had mentioned the 10,790 level in our weekly note as a potential resistance and the previous weeks high stood at 10,784 with the Nifty stopping precisely in this zone.
Going into the next week, the market is likely to consolidate a bit more. The relatively low level of the VIX in recent times has created room for volatility to return and persist in the near term.
Just like the previous week, the 10,790 level is likely to act as immediate resistance for Nifty along with the 10,890 level. Supports are expected at 10,550 and 10,430 levels.
On the weekly chart, the Relative Strength Index or RSI stood at 57.6791. It remains neutral to the price showing no divergence. The weekly MACD remains bearish as it trades below the signal line. However it has moving towards a positive crossover. If the market does not see any major decline in the coming week, this indicator may turn bullish again. No significant formations were observed on the candles.
On the weekly charts, pattern analysis showed the 27-month- long upward rising channel remains intact. However, a potential lower top was getting formed at the 10,784 level.
This area should become an important resistance in the near term. Overall, the structure on the charts and indicators point towards two distinct possibilities: first, it is likely that the Nifty50 will continue to witness more consolidation and some volatility may creep in. Secondly, it is likely that despite near-certainty of consolidation or mild corrective moves spilling over to the coming week, the market will show resilience, and downsides, if any, will remain limited. However, fresh upward move shall occur only after the 10,785 level is breached on the upside.
Investors should look for effective sectoral rotation and selective stock picking in the coming week. A study of Relative Rotation Graphs shows the IT pack is clearly losing momentum and might enter a longer consolidation phase.
Relative outperformance can be expected from the FMCG pack and the services sector. Auto, financial services, Nifty Mid50, Nifty Next50 and broader indices like CNX100 and CNX200 may see improved performance as they entered the Improving Quadrant.
Pharma, PSU Banks, Bank Nifty, smallcaps, Infra and Media stocks may consolidate and contribute through stock specific outperformance. All of this can cumulatively likely to keep the market resilient. Expect metals, realty, energy, PSEs should consolidate more.
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 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)