Volumes were a bit low amid the year-end holiday mood. However, the headline index ended with a net gain of 269.25 points, or 1.96 per cent, on a weekly basis.
For over two months now, the market has been rising relentlessly, amid the weakness in the US dollar. A weak Dollar Index has led to strong FII flows to the emerging markets in general, and India in particular. In the past nine weeks, Nifty has closed with gains in eight. The remaining one week saw some consolidation instead of any corrective move.
However, Nifty has again deviated from the mean too much and it stands overstretched now. The volatility, which rose over 25 per cent during the week before this one, cooled off a bit as INDIA VIX came off 2.04 per cent to 19.56.
The coming week is going to be crucial. Though it is now important to keep a close eye on any significant pullback, if at all it occurs in the Dollar Index, it will mostly responsible for FII flows.
Nifty has opened up a mild upside. Broadly speaking, it shall remain capped with the 14,175 and 14,320 levels acting as resistance points, while supports will come in at 13,850 and 13,700 levels.
The weekly RSI stood at 77.33. It has marked a new 14-period high and remains neutral. It does not show any divergence against the price. The weekly MACD remains bullish and trades above the signal line. A white body emerged on the candle. Apart from this, no other formation was noticed.
Following the strong moves in the past couple of weeks, Nifty has dragged its supports higher to 13,000 level. Even if a corrective move takes the index to this level, it will still keep the current primary uptrend intact as per the broader view on the market.
In the coming days, the possibility of Nifty consolidating cannot be ruled out. The market is likely to remain stock-specific and there is going to be relative outperformance in select pockets. We recommend avoiding shorts at current levels, as Nifty is not giving up despite being overstretched.
Fresh purchases, on the other side, should be kept at moderate levels, as we chase the momentum on a highly cautious note.
In our look at the Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95 per cent of the free-float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) reflects very strong setup in the leading sectors, and also in the sectors that are preparing to look up. Nifty Bank, Metal, Realty, Services Sector and Financial Services indices are all placed in the leading quadrant. Although Services and Financial Services groups are mildly giving up on their relative momentum, all these sectors are set to relatively outperform the broader market.
Nifty Commodities Index has crawled inside the leading quadrant as well. The Midcap100 Index has also crawled inside the leading quadrant following a strong rotation directly from the weakening quadrant. The Nifty IT index is the only incumbent of this quadrant, attempting to consolidate its relative performance.
Nifty Pharma, Media, Energy and Auto Indices are inside the lagging quadrant. However, none of them are rotating in the south-west direction. They appear to be strongly improving their relative momentum. Stock-specific outperformance may not be ruled out from these groups.
Nifty FMCG, Consumption, PSU Banks, PSE and Infrastructure Indices are inside the improving quadrant and appear to be rotating steadily while maintaining their relative momentum against the broader market.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against the Nifty500 Index (broader market) and should not be used directly as buy or sell signals.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)