In the previous technical note, it was mentioned that the markets have a resistance in the 18300-18400 levels zone while it navigates the November month expiry of the derivative series. Quite on the expected lines, the NIFTY consolidated in the first half of the previous week; however, in the last two sessions, it made a strong attempt to move out of the ranged consolidation and inch higher toward its lifetime high point of 18604. The trading range of the Index also widened a bit; it oscillated in the 401.55 point range while staying a whisker away from its lifetime high point. Following strong moves in the last two sessions, the headline index NIFTY ended with a net gain of 205.1 points (+1.12%).The NIFTY Bank Index also continued with its move higher; though it consolidated at higher levels. This index has already broken out much ahead of the NIFTY when it moved above 41840 levels. With this breakout from 41840, the index has already traveled close to 1150 points while NIFTY remains 92 points away from its lifetime high levels. The volatility continued to inch lower; INDIAVIX came off by 7.35% to 13.33; the lowest point seen this year. In the coming week, NIFTY approaches the major resistance point in the form of the lifetime high point of 18604; it would not be surprising if the markets face stiff resistance there before attempting any sustainable breakout.
The markets may see a stable start to the week; the US markets closed largely stable on Friday as they opened after a Thanksgiving holiday on Thursday. NIFTY will face stiff resistance at 18600 and then at 18690 in the coming week. The supports come in at 18400 and 18250 levels.
The weekly RSI is 65.53; it has made a fresh 14-period high which is bullish. However, it remains neutral and does not show any divergence against the price. The weekly MACD is bullish and stays above its signal line.
A bullish engulfing candle appeared on the charts and raises a caution. This bullish engulfing candle has emerged near the high point and resistance; it has the potential to halt this up-move temporarily and cause the markets to consolidate. However, this just needs to be watched carefully and should not be traded in isolation as it would require confirmation on the charts.
NIFTY has been relatively underperforming the NIFTY Bank Index; while lagging in its performance, it is yet to approach its lifetime high point whereas NIFTY Bank Index has already traveled over 1150 points following a breakout. There are possibilities that NIFTY Bank may consolidate a bit at current levels; this may even cause the NIFTY 50 to consolidate near its high point. This is just one of the possibilities; the current technical setup requires us to approach the markets may cautiously.
It is strongly recommended that until a strong breakout is achieved on the NIFTY 50 Index, all profits must be vigilantly protected at higher levels. The breadth of the broader markets is not as strong as it should be; this also increases the possibility of consolidation at higher levels. It would be wise to keep overall leveraged exposures at modest levels, stay invested in stocks having strong or rising relative strength, and also protect profits at higher levels.
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 leadership in the markets is getting limited to just two to three sectors; the other sectors just appear to be still in the process of consolidation. The PSU Bank and Metal Indexes are the only two groups seen comfortably poised inside the leading quadrant. They are likely to continue relatively outperforming the broader markets. While NIFTY Bank is seen taking a breather, the Services Sector index hasn't traveled too far from the center point indicating a lack of relative momentum in the move.
NIFTY Financial Services, Midcap 100, FMCG, Consumption, and Auto Indexes are inside the weakening quadrant.
NIFTY Energy and Realty Indexes continue to languish inside the lagging quadrant; they will continue to relatively underperform the broader NIFTY500 Index. Media Index is inside the improving quadrant but it is seen giving up on its relative momentum against the broader markets.
NIFTY IT, Commodities, Pharma, PSE, and Infrastructure Indexes are inside the improving quadrant. Among these groups, IT Index remains the strongest among all and may deliver maximum relative outperformance as compared to the other indexes that are inside this 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
Consulting Technical Analyst