Nifty: Dalal Street week ahead: Nifty losing momentum; stay alert & ride the rally

The risk-on global setup, which had begun a week before, continued throughout the previous week as well. The resultant buoyant setup drove the Indian market higher, which ended at a new lifetime high.

Though the momentum continued to falter, the market did not show any sign of retracement and, instead, continued to consolidate at higher levels. After experiencing rangebound movement over the past couple of days, Nifty ended the week with a net gain of 185 points, or 1.53 per cent.

While we trade at near lifetime highs, there are a couple of points one should not lose sight of. Despite Nifty closing at its highs, the loss of momentum is very much visible on the charts, and this has resulted in the weakening of market breadth. Volatility index INDIA VIX has cooled off by a further 7.33 per cent to 12.32, and it now trades at one of its lowest levels in recent months. All these may not result in any immediate downtrend, but it is something that we should keep in mind and be aware of.

The market is likely to see a quiet start to the coming week. Nifty continues to remain in the uncharted territory, and the 12,310 and 12,400 level will act as resistance, while supports will come in much lower at 12,170 and 11,900 levels. In the event of any corrective move, the trading range is expected to get broader than usual.

The Relative Strength Index (RSI) on the weekly chart stood at 66.44; it remains neutral and does not show any divergence against the price. The weekly MACD is bullish, and it trades above the signal line. The PPO remains positive. A white body has emerged on the candles, though it does not represent any critical formation on the charts.

Pattern analysis of the weekly charts showed Nifty has achieved a breakout after moving past the 12,100 mark on a closing basis. There is a clear loss of momentum on the charts, but as long as Nifty stays above the 12,100 mark, this breakout will continue to be in force.

If we see continued uptrend over the coming week, we will need to keep in mind that the market remains somewhat overbought and over-extended on the charts. Such a formation has increased the possibility of the market taking a breather. It seems to be in for some consolidation at current level. Exercise prudence and resort to vigilant protection of profits at higher levels to avoid getting caught on the wrong foot in the event of any corrective move, if there is any. A cautious following of the uptrend is advised.

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95 per cent of the free float market-cap of all the listed stocks.

A review of Relative Rotation Graphs (RRG) showed that for the coming week, we will need to keep our focus on PSU Banks, Bank Nifty, Media, Metal, Pharma and Auto stocks. These sectors are placed at different places in the Improving and the Leading Quadrant and appear to be moving higher while maintaining their relative momentum.

These groups may collectively present relative outperformance when benchmarked against the broader Nifty500 Index. The degree of their relative out-performance will vary because of their distance from the benchmark Nifty500 Index. The Energy group is on the verge of slipping in to the weakening quadrant.

Alongside Energy index, the FMCG and the Consumption indices have also advanced further into the weakening quadrant. The Infrastructure index has further advanced into the lagging quadrant and these groups are likely to relatively underperform the broader market.

The IT pack remains the worst performer and it is seen lying far in the lagging quadrant while attempting to stabilise. However, it is unlikely to show any significant performance over the coming week. The Financial Services pack has also advanced in the leading quadrant and is likely to display some resilience in the event of any corrective move in the market.

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 Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)