In a week where the trading range remained much wider on the expected lines, the Indian equity markets remained predominantly under pressure. For four out of five days, the NIFTY remained under sustained corrective pressure, as it ended each of the past four days in a "measured" corrective note. With the trading range of 407 points in the week before this one, the NIFTY saw itself in an 865-point trading range. Few of the important levels were tested on both daily and weekly charts. The directional bias throughout the week remained strongly bearish. Finally, the benchmark NIFTY index ended with a net loss of 638.60 points (-3.50%) on a weekly basis.
The coming week is important in many ways; it is the expiry week of the current monthly derivative series. Apart from that, the NIFTY has, as of now, has tested and defended the 50-DMA, which presently stands at 17505. It has closed a notch below the 100-DMA, which stands at 17640. On the weekly charts, the NIFTY has tested the 20-week MA, which is presently at 17645. Though it has ended a notch below this point, it is practically defended as of today. It would be precariously important for the markets to take support at these levels in order to avoid the current weakness turning out into a prolonged corrective phase.
Volatility spiked; INDIAVIX surged by 14.09% to 18.89. The coming week is expected to see the levels of 17750 and 17800 acting as resistance points. The supports are likely to come in at the 17500 and 17350 levels. The trading range is likely to get a bit narrower compared to the previous week.
The weekly RSI is 55.39; it is neutral and does not show any divergence against the price. The weekly MACD remains bearish and trades below the signal line. The formation of a big black candle shows the bearish directional consensus of the market participants.
The pattern analysis shows that the NIFTY has marked a lower top in the zone of 18280-18350 after the original lifetime high of 18600 levels. This makes the zone of 18280-18350 a formidable resistance area for the markets. We will not see any runaway up move unless the NIFTY is able to move past this zone.
The coming week will be crucial, and will also be a truncated one due to January 26 being a Republic Day holiday. It would be important for the markets to find a base and stabilize themselves. In a way, the current correction can have a good base for a pre-budget rally as we approach the Union Budget over the coming days. Even if the weakness persists, it is recommended that it may be used to pick good-quality stocks. Short-term selling may be overdone; any weak start to the week may see strong short-covering from lower levels. While keeping overall exposures at modest levels, a cautious approach is advised for the coming week.
Sector Analysis for the Coming Week
In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.
The analysis of Relative Rotation Graphs (RRG) shows that there is no major change in the sectoral setup as compared to the previous week. NIFTY Auto and IT remain in the leading quadrant; they are likely to relatively outperform the broader markets.
The Midcap 100 Index, Realty and Media, along with the Infrastructure Index and PSU Bank Index, are inside the weakening quadrant. However, looking at the trajectory of the respective tails, stock-specific outperformance from these groups cannot be ruled out.
NIFTY Bank, PSE Index, FMCG and the Financial Services Index are inside the lagging quadrant. However, they all appear to be in the process of consolidation.
The Commodities, Small Cap, Pharma and the Metal Indices are inside the improving quadrant. They are likely to offer resilient performance as benchmarked to the broader markets.
Important Note: RRG™ 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
Consulting Technical Analyst
www.EquityResearch.asia | www.ChartWizard.ae
