D-Street week ahead: Nifty loses momentum; FMCG topping out

While continuing to trade on the expected lines, the domestic equity market headed nowhere during the week gone by and ended on a flat note. The market never really saw any directional move, as it remained within a defined range through the week.

Having oscillated back and forth in a capped range, headline index Nifty ended with a marginal gain of 18.95 points, or 0.16 per cent. This was the third week in a row when Nifty was not able to move past its crucial resistance area.

In the coming week, Nifty faces a similar set of technical challenges as it faced over the past couple of weeks. The negative divergence on the RSI has not been resolved, and it continues to exist. The 12,000-12,100 zone has not been taken out, and this area will also continue to post stiff resistance to the market in the coming days.

Nifty has been showing clear signs of fatigue and exhaustion over the immediate short term. India VIX has further cooled down by 1.05 per cent to 14.87. It is likely to see s muted start in the coming week, and the index is expected to face stiff

overhead resistance near the 12,000-12,100 zone. While the area mentioned is expected to offer stiff resistance, supports will come in at 11,850 and 11,700 levels. The range for the market may get wider than usual if the Nifty gets into corrective mode.

The weekly RSI is at 61.87; it shows negative divergence against price. While Nifty has formed a fresh 14-period closing high, the RSI has not. The weekly MACD remains bullish and trades above its signal line. On the candles, a Doji with a long upper shadow has occurred. The occurrence of a Doji-like candle or a long upper showdown in an uptrend has the potential to stall the current trend. Though this would require a confirmation on the next bar, Nifty looks vulnerable at current levels as similar candles have emerged over three consecutive weeks.

Going by pattern analysis, though the market has not shown any breakdown on the charts, it has undoubtedly stalled the uptrend. The 12,000-12,100 zone has become a crucial resistance for the market, and loss of momentum is evident around this zone.

Currently, there is no bearish signal on the charts yet. However, the loss of momentum has been of concern at current levels. Nifty has halted its up-move at the moment. It would be interesting to see whether the market is just taking some breather while consolidating in a range or preparing for some corrective steps.

We recommend continuing to stay light on positions and avoid over leverage so long as Nifty continues to consolidate in a range. There is a high probability of some corrective moves, if the overhead zone at 12,000-12,100 is not taken out soon. Until a directional xall is established, keep protecting profits on either side. A cautious view 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.

The review of Relative Rotation Graphs (RRG) showed the FMCG and the Consumption groups are in the process of topping out. They appear to be steadily losing momentum while remaining in the leading quadrant. The Auto and Energy packs remain firmly placed in the leading quadrant and are likely to relatively outperform the broader Nifty500 Index.

Strong rollover was also seen in Bank Nifty, as it has moved into the improving quadrant on back of steady improvement in its relative momentum. Giving Bank Nifty company is the Metal group, which is placed in the improving quadrant. The smallcap and PSU groups have stalled themselves over the past weeks.

The IT index has continued its mover further in to the lagging quadrant. This sector is unlikely to post any good performance over the coming week. While PSU Bank index has steadily improved its relative momentum, it still has some distance to cover while it completes its bottoming out process. No major show is expected from the Infrastructure and the Realty packs.

Important Note: RRG™ charts show you 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 milan.vaishnav@equityresearch.asia)