Analyzing India

NIFTY Mildly Penetrates The 50-Week MA; Moving Past These Levels is Necessary For A Sustained Up-Move


It was a volatile end to the week as the NIFTY index oscillated in a 100-point range on Friday, finally settling with a modest loss after rebounding from the lower levels. Just like the week before, no major downsides were seen. The NIFTY just barely managed to pierce the 50-Week MA, which is currently at 10748. After oscillations in a defined range, the headline index NIFTY50 ended with modest gains of 67.60 points (+0.63%) on a weekly basis.

The market continues to remain poised at a critical juncture. Despite exhibiting buoyant undercurrents, it continues to struggle to move past the important level of 10940, which is a lower top that was created couple of weeks back.

We expect a neutral start to the week. NIFTY is expected to inch higher, provided that it manages to move past a few critically important levels on the daily charts. The coming week is likely to see the levels of 10900 and 10975 playing out as important resistance areas. Supports will come in at the 10710 and 10600 marks.

The Relative Strength Index (RSI) on the weekly chart is 50.5616; RSI continues to remain neutral against the price. Weekly MACD is bullish and remains above its signal line. PPO is positive and remains in continuing buy mode. A black body emerged on candles, though given the present structure of the charts, it remains insignificant.

From the pattern analysis, it can be observed that, after forming the high of 11760 and subsequent corrective decline, the NIFTY has formed a lower top in the 10940-10950 zones. The index has mildly penetrated the 50-Week MA, which is presently at 10748. NIFTY will have to move past the 10940-10950 area for a sustainable up move.

Despite the market exhibiting buoyant undercurrents, the coming week has the potential to go to either side. It would be technically important for the market to keep its head above the 50-Week MA to avoid any weakness.

Given the overall technical structure, as well as considering the F&O data, we are unlikely to see any significant structural downsides. We recommend continuing to make select purchases during this period of consolidation. However, unless 10950, which is also a major pattern resistance on the daily chart, is breached on the upside, profits must be vigilantly protected at higher levels.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95% of the free float market cap of all the stocks listed.

The study of the Relative Rotation Graphs (RRG) shows some interesting technical developments taking place. The important sector indexes like the NIFTY Next 50 (NIFTY Jr), BankNIFTY, Nifty MidCap, Infrastructure and Financial Services have shown distinct signs of slowdown in momentum, suggesting the possibility of some consolidation in these groups. The Consumption and PSUBank Indexes are the only two groups which remain firmly placed in the leading quadrant while keeping their momentum intact. These groups are likely to relatively out-perform the broader markets.

The Realty Index and the Auto Index remain in the improving quadrant and also appear to be consolidating their positions, improving their relative momentum against the general markets.

The NIFTY PSE, Metal and FMCG indexes are not likely to put up any eye-catching shows. However, the ENERGY, Pharma and IT Indexes appear to be attempting to stabilize and are likely to put up stock-specific performances in the coming week.

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst

Milan Vaishnav
About the author: , CMT, MSTA is an Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. With his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research and presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors India-focused "Daily / Weekly Market Outlook" - A Daily / Weekly Newsletter, currently in its 15th year of publication. Learn More
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