When Friday’s session ended, we not only ended the trading week, but also the month and year. 2022 has been choppy for stocks, to say the least. Markets have had to contend with weak trends, geopolitical tensions, inflation, recession fears and a series of rate hikes by central banks around the world. Markets continued to remain below the 18600 level for the past week; However, they were able to successfully defend the crucial supports. The trading range narrowed; NIFTY has ranged around 491 points for the past five days. After a few volatile sessions, the headline index NIFTY closed with a net gain of 298.50 points (+1.68%) on a weekly basis.
With that, NIFTY ended the year up 4.33% on a YTD basis. On a monthly basis, however, the index lost 3.48%. From a technical point of view, the index has defended the shorter 20-week MA, which remains at 17858. To bolster this support with the levels on the daily chart, the 17850-18000 zone is expected to act as a strong zone of support for the NIFTY. Only a dip below this point will gradually weaken the markets. Volatility has dropped; INDIAVIX was again down 8% to 14.87.
The markets are at a crucial juncture; It would be crucial to keep your head above the 17850 to 18000 zones to avoid weakness. Next week 18350 and 18500 levels are likely to act as resistance points. The supports are at 17900 and 17600.
The weekly RSI is 55.81; it remains neutral and shows no deviation from the price. The weekly MACD has shown a negative crossover on the expected lines; it is now bearish and trading below the signal line. No other important patterns were detected on the candles.
Pattern analysis of the chart shows that as long as it stays above 18000 there are chances of it stalling and moving back up. Only breaching the 17850 to 18000 zone will result in weakness. The index had attempted a breakout by surpassing the previous high of 18604; However, after testing the 18887 levels, the index not only retested the 18600 breakout point, but slipped well below that level. So far the breakout attempt has failed and NIFTY continues to face strong resistance at 18600.
The last week of trading was characterized by lower participation due to the holiday season. The coming week can also remain cautious. Looking at cross-asset analysis, there are possibilities that the dollar index is showing some weakness; this could bode well for metals and commodities stocks. However, there is no confirmation of this weakness on the DXY charts. That being said, markets could remain largely stock-specific. It would be prudent to continue to manage leveraged exposure and keep overall exposure at a modest level. Caution is advised 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 PSE, Infrastructure, Metals, PSU Bank, Banknifty and Services indices are placed in the leading quadrant along with Commodities and Financial Services. Among these, the Services Sector Index and Banknifty appear to be faltering slightly on the relative momentum front. However, all of these groups will relatively outperform the broader markets.
The FMCG index has been in the weaker quadrant, but this too has rolled into the lagging quadrant.
Skilled mid-cap, auto, consumption, and FMCG groups are in the lagging quadrant. Media and pharmaceutical companies also continue to languish in the backward quadrant. The NIFTY Realty Index is within the lagging quadrant but improving in relative momentum.
Nifty IT is within the improving quadrant but giving up its relative momentum; This may cause the sector as a whole to struggle to speak of resilience, but stock-specific performance cannot be ruled out.
Important NOTE: RRG™ charts show the 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 world-class India-focused independent technical research. 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.
