It was the second week in a row that the markets didn’t make much progress; remained directionless and ended up with only modest gains. Volatility has been falling for the past few days; the VIX remains at one of its lowest levels in recent history. Also this week there was no big increase in volatility. Market sentiment remained calm with volatility remaining very low. The trading margin also remained modest; For the past five days, the NIFTY has been oscillating in a trading range of 415 points. While the NIFTY continued to resist key levels, it ended with a modest gain of 87.70 points (+0.49%) on a weekly basis.
The 20-week MA, which currently stands at 17981, has gained prominence on the weekly charts over the past few weeks. While trading higher, the NIFTY took support at this support level for five consecutive weeks. After the index violated this support and slipped below it, NIFTY defies the 20-week MA for the third straight week. On the daily chart, NIFTY closed just one level below the crucial 100-DMA placed at 17967. With 50-DMA at 18033, NIFTY has multiple resistance levels to navigate between the 17950-18050 levels on both daily and weekly charts. In other words, meaningful upward movement will only occur after NIFTY has convincingly moved above the 18000 – 18100 levels.
INDIAVIX, the volatility barometer, which has been trading near its lowest levels in recent times, rose 2.67% to 13.09. This remains a cause for concern in the short term. Markets could see a quiet start to the week. The 18100 and 18250 levels should act as potential resistance points. The supports are at 17900 and 17780.
The weekly RSI is at 52.99; it remains neutral and shows no divergence on the price. The weekly MACD is bearish and trading below the signal line.
Pattern analysis shows that the NIFTY experienced a failed breakout when it was unable to move significantly past the previous high of 18600. It just made an incremental high, saw a corrective move and slipped below the breakout point, resulting in a failed breakout. It is currently resisting several resistance points that are close together on the daily and weekly charts. The overall pattern analysis shows that meaningful upward movement will only occur if NIFTY moves convincingly above 18100 and stays above that point. Until that happens, we are likely to face any upside move against strong resistance at higher levels.
All other technical factors aside, the low VIX level is a cause for concern in the near term. The persistently low levels of the VIX indicate a period of low volatility and indicate complacency among market participants. This should be taken with caution. Any rise in the VIX, which is perfectly normal when this indicator stays low for a long time, can hurt the markets.
Unless the index moves above 18100, the markets will not see a runaway move higher. The overall approach to markets must be stock specific and selective in the coming days. We will see defensive stocks and low beta stocks outperform; We are also likely to see isolated outperformance from the banking, IT, financial and auto sectors.
The coming week is expected to look defensive; It’s likely that areas like FMCG, Pharma, IT, PSE, etc. will do well. While selected outperformance of other sectors cannot be ruled out, it would be prudent to remain invested in low beta stocks which tend to exhibit much lower volatility. The VIX at one of its lowest levels remains a concern and given this, markets need to be approached with extreme caution in the coming days. However, leveraged exposures need to be kept at modest levels unless key resistance points are removed. A cautiously positive outlook is appropriate for the coming week.
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
Analysis of the Relative Rotation Graphs (RRG) shows that the Auto Sector Index has also rolled into the leading quadrant; this joins the NIFTY IT and FMCG Indexes which are firmly placed in the leading quadrant. These groups will relatively outperform the broader NIFTY 500 index. The NIFTY PSE Index is also in the leading quadrant.
On the other hand, the NIFTY Infrastructure Index rolled into the weaker quadrant. In addition, the NIFTY Commodities, Financial Services, Services Sector, NIFTY Bank, Metal and PSU Bank indices are also in the weaker quadrant.
NIFTY Realty, Media and the energy indices will continue to languish in the lagging quadrant. The NIFTY consumer sector index is also in the lagging quadrant; however, its relative momentum versus the broader markets is seen to be significantly improving.
The NIFTY Pharma Index is in the improving quadrant; This could continue to show robust performance versus the broader markets in the coming week.
Important NOTE: RRG™ charts show the relative strength and momentum of 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.
