Dalal Street Week Ahead: Market breadth remains weak, Nifty faces strong hurdle at 15,900

In the week gone by, the Indian equity market consolidated and traded in a limited range, while it ended the week with modest loss. The Nifty oscillated in the same range as the week before this one. Though it ended on a negative note, it also formed a parallel bar on the charts.

The index had a trading range of 281-odd points throughout the week and slipped from its high point once again to end in the red. This was the second week in a row where the Nifty faced fierce resistance in the 15,850-15,900 zone and retraced from that level. The headline index finally closed with a net loss of 32.40 points or 0.21 per cent on a weekly basis.

Although the decline on a week-on-week basis was just modest, the current week was mildly damaging for the Nifty. The index has slipped and closed slightly below the rising trendline support. This trendline begins from the lows of March 2020 and joins subsequent higher bottoms. Unless the index crawls above this pattern support (now a likely resistance) once again, the market will stay prone to corrective moves. The volatility as represented by India VIX saw a spike of 7.05 per cent on a weekly note. It rose to 12.94, which also remains one of the lowest levels seen in the recent past.

The coming week will be tactically important for the market. The Nifty will see the levels of 15,780 and 15,900 acting as resistance points; the supports come in at 15,550 and 15,400.

The weekly RSI is 65.14; it stays neutral and does not show any divergence against the price. The daily MACD is bullish and above the signal line. However, the Histogram is flat, indicating total absence of momentum on the upside. No significant formations were observed on the candles.
The pattern analysis shows a modest violation of the important pattern support. This pattern support is in the form of an upward rising trendline that begins from the low point in March 2020 and joins the subsequent higher bottoms. Following a mild violation, the Nifty may now face resistance from this trendline going ahead unless it manages to crawl back above this.

The market breadth remains internally weak. Also, the internal strength and momentum were missing during all technical pullbacks, and this remains a concern. We recommend continuing to track the markets cautiously. It is also suggested that aggressive positions on either side, long or short, should be avoided unless the market takes a directional call from the present stage of consolidation.

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

The review of Relative Rotation Graphs (RRG) shows mixed sectoral trends in the market. On one hand, the high beta sectors are also doing good and on the other side, the defensive ones like FMCG and consumption have started to look up once again.

Nifty Pharma stays in the leading quadrant, but it is seen continuing to give up on its relative momentum. Besides this, Nifty PSU Bank index has entered the leading quadrant. Nifty PSE index and Nifty Energy index are also inside the leading quadrant and may relatively outperform the broader markets.

The metal index is inside the weakening quadrant, and so is the Nifty MidCap 100 index.

Nifty Infrastructure index is inside the lagging quadrant and does not appear to be making any major headway. Nifty Realty, services sector, and Nifty Bank index are also inside the lagging quadrant. However, they are improving on their relative momentum against the broader markets along with the Nifty Financial Services index.

Nifty IT index is inside the lagging quadrant. However, it is seen attempting to consolidate its performance. The Nifty FMCG and consumption indices that were paring their relative momentum against the broader Nifty500 index over the past many weeks are seen looking up once again. Nifty Media index also stays firm inside the improving quadrant.

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