The week gone by remained as flat as it could get. In our previous weekly note, we had projected the market to remain volatile with the 11,760 level providing stiff resistance to any rally. On those projected lines, the market remained volatile, headed nowhere and continued to face resistance at the 11,760 level before finally ended the week flat with a meagre gain of 1.85 points, or 0.02 per cent.
Going into the new week, it will be a truncated one with two trading holidays; Monday on account of voting in Mumbai and Wednesday on account of Maharashtra Day.
We expect the market to largely remain volatile during the coming week. With Nifty ending very close to the key level of 11,760, the market’s behaviour vis-à-vis the 11,760 level will be the key focus.
Nifty may attempt to move higher and struggle with not-so-favourable short-term technical setups. The 11,760 and 11,890 levels are likely to act as immediate resistance points for Nifty, while supports should come in much lower at 11,650 and 11,550 levels.
The Relative Strength Index or RSI stood at 68.9554 on the weekly chart. The weekly MACD remains bullish as it trades above the signal line. A long lower shadow occurred on the candles. This usually has bullish implication, but only if it occurs during a downtrend or after some corrective move.
In the present context, this formation is not of any significance. The small real body candle has formed a Spinning Top, which often signals indecisive behaviour of the market participants and shows potential loss of momentum.
Nifty is currently facing resistance at the lower trend line of the upward rising channel which it had breached on the downside in October 2018. Given the rising nature of this trend line, Nifty has been marking incremental highs, but is failing to achieve a clean and clear breakout. In the coming weeks, even if Nifty marks some incremental higher levels, it may still not help the index achieve a sustainable and strong breakout.
We strongly suggest using any upmove to reduce exposure and protect profits at higher levels. One should avoid aggressive buying and keep the positions highly selective and modest.
In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent the free float market-cap of all the listed stocks.
A review of Relative Rotation Graphs (RRG) painted a mixed picture. The Realty sector remained firmly placed in the leading quadrant, though it is consolidating at current levels. Apart from this, the epack in the leading quadrant is losing momentum strongly. In the previous week, it seemed to have taken a breather. Apart from this, the PSU Bank Index crawled back into the leading quadrant. These three groups are likely to offer resilient performance in the coming week.
Apart from this, the media pack has taken a U-turn and has shown a sharp loss of momentum despite remaining in the improving quadrant. The metals, CPSE and pharma packs are keeping their relative momentum intact and are placed in the improving quadrant. The Infrastructure index is improving its relative momentum against the broader CNX500 index though it remains in the lagging quadrant as of now.
The IT, Services Sector, FMCG, Consumption, Financial Services indices and Bank NIFTY are gradually losing momentum against the broader CNX500 index. Barring some stock specific outperformances, these groups may not offer any significant outperformance against the broader market.
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 market) and should not be used directly as buy or sell signals.