However, this led to an increase in volatility of the previous week. Following days of rangebound corrective move and some advancement on the broader terms, the headline index finally ended with a net gain of 328 points, or 2.35 per cent.
The market is showing a massively strong undercurrent over the past quarter. In last 10 weeks, Nifty has gained over 2,800-odd points; and has ended with gains in nine out of the past 10 weeks.
The only one week when it had a negative ending, it was a cut of just 11-odd points. Such is the strength of the market! However, despite this, we cannot disregard the terribly overstretched technical setup on the weekly charts. The market looks overbought; and the spike in US 10-year bond yields and any technical pullback in the US dollar will subject the domestic market to some hiccups.
Nifty is likely to stay in a wide range in the coming week. Derivatives data suggested piling up of long positions. The Put-Call Ratio of over 1.70 is on the threshold of getting overbought, but it stands for a buoyant setup. The 14,450 and 14,550 levels will pose resistance for Nifty at higher levels, while supports will come in lower at 14,150 and 13,930 levels.
The weekly RSI stood at 77.38. It is grossly overbought, but remains neutral as it does not show any divergence against price. The weekly MACD remains bullish and is above the signal line.
Pattern analysis of the weekly chart reveals Nifty has broken out afresh after Nifty took out the 13,700-13,750 range. If the price implications are measured following this breakout, it has almost achieved the expected levels. However, some gap and space left for some minor upsides. However, that would complete the price level targets following the most recent breakout.
All in all, the trend remains strong, and this is what matters as we chase the market momentum. However, we may continue to follow the trend, which is obviously and strongly on the upside, but we need to chase the momentum, keeping the broader picture in mind. We reiterate that it is all the more important to stay with the defensive sectors and avoid high-beta stocks, which have run up too much, too fast. We recommend approaching the market cautiously and keeping the overall exposure at modest levels.
In our look at the Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty500 Index), which represents over 95% of the free-float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) shows while Nifty Metal and Realty Indices are placed firmly in the leading quadrant, Nifty Services and Financial Services Indices, Bank Nifty and the Commodities Index appears to be taking some breather despite being placed in the leading quadrant.
Nifty IT index is the only one in the weakening quadrant. However, it is not rotating in the bearish south-west direction, but appears to be looking up again. It has shown some improvement in relative momentum.
Nifty Pharma, Media and Auto Indices are in the lagging quadrant. However, they are all improving on relative momentum in a near-vertical manner. Only the Energy Index seems to have temporarily snapped its streak of improvement over the previous week. It remains in the lagging quadrant as of now.
The FMCG index is in the improving quadrant and looks like it is taking a breather. Apart from this, Consumption, PSU Banks, PSE and Infrastructure indices are firmly placed inside the improving quadrant and continue with their healthy north-easterly rotation while maintaining their relative momentum against the broader Nifty500 index.
Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance against 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 firstname.lastname@example.org)