It has been categorically stated over the past few weeks that as long as the NIFTY stays below the 18300 level, it is likely to continue consolidating in the current range. The index has currently established a very well defined trading range and continues to stay within the defined limits. The market has seen mixed trends over the past week and has remained quite volatile with the trading range remaining tight as the NIFTY has ranged around 330 points for the past five sessions. The headline index, while showing no directional bias, ended with a modest gain of 71.05 points (+0.40%) on a weekly basis.
We have a shortened week ahead of us; January 26th is a trade holiday due to the observance of Republic Day. There are no significant changes to the overall technical setup seen at the beginning of the previous week. It is important to note that it is now the fifth straight week that NIFTY has found support at the 20-week MA, which currently stands at 17907. This level is also very close to the 100-day ma, which is 17937. This makes the 17900-17940 zone a strong area of support for the NIFTY, but a dip below this point will result in increasing weakness in the markets .
Volatility has dropped; INDIAVIX lost 4.65% weekly to 13.75. In the coming week, the index will face resistance at the 18300 and 18480 levels. The supports come in at 17900 and 17760.
The weekly RSI is 54.42; it remains neutral and shows no divergence on the price. The weekly MACD is still bearish and trading below its signal line. A spinning top appeared on the candles, which was almost called Doji. The appearance of such a candle near the support area gives credibility to the support.
Pattern analysis of the weekly chart shows that NIFTY finds support at the 20-week MA which stands at 17907 for five consecutive weeks. This point is now a crucial support for the index, coupled with the 100-DMA on the shorter time frame chart. Overall, the NIFTY is unlikely to adopt a directional bias while in this trading range; A sustained directional bias would only emerge if the NIFTY moves above the 18300 level or slips below the 17900 level.
The overall technical setup remains almost unchanged this week compared to the previous week. All the markets have done is consolidate within a certain range and go nowhere. As markets move towards the Union budget, which is one of the most important external domestic events, it is likely to consolidate with a positive bias. We will see sectors like PSE, IT etc. do well. The dollar index is still weak, if it stays that way it should do well in the commodities and metals stocks as well. Next week’s action will likely remain stock specific; Maintaining overall exposure at a modest level until a clear direction is identified is strongly recommended. While positions are kept low, a cautiously positive outlook is recommended for the week ahead.
Industry analysis for the coming week
In our look at Relative Rotation Graphs®, we compared various sectors to the CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all listed stocks.
The analysis of the Relative Rotation Graphs (RRG) shows no significant changes in the sectoral composition compared to the previous week. Despite being placed in the leading quadrant, the Metals, PSU Banks, Financial Services and Services Sector indices are taking a bit of a breather. However, they will continue to outperform the broader market’s NIFTY500 index in relative terms, along with Nifty PSE, Infrastructure, Commodities and BankNifty, which are also placed in the leading quadrant.
No sector is currently in the weakening quadrant.
Nifty Realty and Media sector indices appear to be languishing within the lagging quadrant. They can relatively underperform the broader markets. Alongside these sectors, the auto, pharma, midcap 100, FMCG and consumer sectors are also in the lagging quadrant. However, they appear to be improving their relative momentum versus the broader markets.
Energy and IT sectors are placed within the improving quadrant. They could continue to show resilient performance versus the broader markets.
Important NOTE: RRG™ charts show relative strength and momentum for a group of stocks. In the chart above they show relative performance against the NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
Milan Vaishnav, CMT, MSTA is a capital markets professional with nearly two decades of experience. His area of expertise includes consulting in portfolio/fund management and advisory services. Milan is the founder of ChartWizard FZE (UAE) and Gemstone Equity Research & Advisory Services. As a Consulting Technical Research Analyst and with over 15 years experience in the Indian capital markets, he has provided clients with top quality independent technical research focused on India. He is currently a daily contributor to ET Markets and The Economic Times of India. He is also the author of one of India’s most accurate Daily/Weekly Market Outlooks – a Daily/Weekly Newsletter currently in its 18th year of publication.
