Throughout the week gone by, the domestic equity market continued to face resistance at the falling trend line pattern. Though no major downsides were witnessed, Nifty did not make any major upward move either. A major part of the previous week saw addition of a significant amount of shorts, but no short covering came through and Nifty settled the week with a net loss of 132 points or 1.22 per cent.
Despite so many shorts in the system, the market still waiting for a major upward move. Nifty has just ended below its 50-week moving average at 10,753. This level coincides with the falling trend line pattern resistance as well. This trend line begins from the high of 11,760 and joins the subsequent lower top.
Going into a new week, we expect a positive start. It would be important for the market to move past above the 50-week moving average meaningfully and then the subsequent resistance areas on the daily charts. As of now, Nifty50 remains trapped in a narrow range and a sharp move, therefore, on either side is possible.
The Relative Strength Index (RSI) on the weekly chart stood at 49.0187; which remains neutral and shows no divergence against the price. The weekly MACD remains bullish, as it continues to trade above the signal line. An engulfing bullish candle has occurred on the charts.
Since it has occurred during a downtrend, it signals a potential bullish reversal. However, it requires confirmation on the next trading bar.
All in all, while the market continues to struggle to move past key resistance levels, we expect to see Nifty trade with a positive bias during the coming week. Any meaningful upward move will emerge only after the index moves past the congestion zone at 10,900-10,950. Previous weeks low of 10,628 remains a key support for Nifty. Any move below this level will infuse weakness. With the 10,628 level acting as an important support, Nifty will remain in a defined range with the 10,900-10,950 zone acting as key resistance.
Despite struggling at key resistance levels, Nifty has added a good amount of open interest during the past week. Downsides, if any, are expected to be limited in the coming week, as the existing shorts are likely to lend support at lower levels.
We recommend traders to overall exposures limited, preserve liquidity at lower levels and go for only modest purchases at every dip. Shorts should be avoided as it may lead to short squeeze at lower levels unless Nifty breaches key supports. Overall, a cautiously positive approach is advised for the week ahead.
In our look at Relative Rotation Graphs, we compared various sectors against the CNX500, which represents over 95 per cent the free-float market-cap of all the listed stocks.
It shows market action is likely to remain limited in select pockets. The pharma index, infrastructure index and Bank Nifty continue to remain in the leading quadrant. However, they are taking a breather and consolidating even as the momentum gets stalled. PSU Banks, Nifty Consumption Index, financial services and midcap indices also remain in the leading quadrant and are keeping their momentum intact.
Realty and auto indices remain firm in the improving quadrant and are maintaining their momentum. Nifty Junior (Nifty Next 50) is moving towards the leading quadrant.
The FMCG index has suddenly retraced and it is losing steam along with the broader CNX100 and CNX200 index. The Energy index, along with pharma and metal indices have has crawled in the lagging quadrant, but flattened their trajectory.
These pockets are likely to witness isolated stock-specific performance.
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 Nifty500 Index (broader markets) and should not be used directly as buy or sell signals.