The Indian equity market had a volatile week and ended on a flat note. In our previous weekly note, we had mentioned about the possibilities of the market stalling its upward move and showing some corrective tendencies. After remaining volatile all through the week, a bounce in the last hour of Friday’s trade helped the market end the week with minor gains. Had it not been for this last-hour pullback, the week would have on a negative note.
Headline Nifty50 settled the week with a net gain of 42.05 points or 0.36 per cent.
Looking at the coming week, the market is placed on a tricky turf. On one hand, the market is simply refusing to correct despite all available ingredients; while on the other hand, there is a high and usually unsustainable premium of 90-points on Nifty futures to deal with, which remains at a three-year high, and there is persistent negative divergence on the daily chart.
Unless the market sees some healthy correction in the coming days, the unabated upward moves are likely to turn unhealthy. Going into the coming week, it would be necessary for market participants to stick to traditionally defensive stocks sectors like IT and pharma.
We expect a stable start to the week, but the market is likely remain vulnerable to bouts of profit taking at higher levels. The 11,760 level still remain the all-important resistance point. Unless this point is taken out, we do not expect any runaway rally to occur.
Nifty is expected to see the 11,760 and 11,845 levels act as likely resistance points in the coming week. Supports should come in much lower at 11,510 and 11,420.
The weekly RSI stands at 67.7869. It has marked a fresh 14-period high, but does not show any divergence from the price. The weekly MACD continues to be bullish as it trades above the signal line. A Doji Star emerged on the candles after an upward move and can potentially have bearish implications.
Nifty has ended the week above the upper Bollinger band. Though this may result in a continued upward move, the bands remain wider than normal. In the current case, the most likely scenario is that Nifty will continue in the same trading range where it currently trades. We may also see Nifty pull back inside this band.
We strongly recommend adopting a highly stock-specific approach in this market. Exposure should be kept modest and it should be limited to traditionally defensive stocks. We might see limited outperformance in stocks and sectors only from specific pockets.
While we should continue to protect profits vigilantly at higher levels, a highly cautious approach is advised for the coming week.
In our look at the Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent of the free float market-cap of all the listed stocks.
A review of Relative Rotation Graphs (RRG) shows that a relative out-performance is likely only from limited pockets in the coming week. Bank Nifty, Nifty, Energy, FMCG, Consumption, Financial Services and Services indices are all losing relative momentum against the broader CNX500 index.
The CPSE, Pharma, Metal and Media groups have posted good performance and are seen improving relative momentum. They are currently in the improving quadrant and are likely to consolidate and improve their momentum going ahead. The realty pack is placed firmly in the leading quadrant. All these groups, along with the metals pack which has moved into the improving quadrant, are likely to post good relative outperformance against the broader CNX500.
The PSU Bank Index has moved back inside the weakening quadrant from the lagging quadrant. This sudden turn may suggest a return of momentum, but it may also happen that the PSU Bank index shall consolidate offering some stock-specific performance.
Important Note: RRGTM charts show relative strength and momentum for a group of stocks. In the above chart, they show relative performance as against Nifty500 Index (broader markets) and should not be used directly as buy or sell signals.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of