Banking and financial stocks grossly outperformed the frontline indices. Despite Nifty’s relative underperformance, it still ended the week with a net weekly gain of 276 points, or 2.43 per cent.
‘Dollar Deluge’ was dominant factor for Dalal Street and the surge was driven mainly by a huge gush of liquidity. Bank Nifty played a massive catchup as the index gained a massive 2,224 points, or 9.97 per cent. Volatility, too, declined further, with INDIA VIX coming off 7.97 per cent to 18.35 on a weekly basis.
Given the current technical setup and the ongoing weakness in the US dollar, Nifty is likely to move higher and financial stocks should stay resilient along with other defensives.
In the event of any consolidation, the index is expected to stay within a broad range. Market participants will need to guard against any likely surge in volatility at higher levels.
Nifty is expected to see a stable start in the coming week. The 11,735 and 11,885 levels will act as key resistance points, while supports will come in at 11,410 and 11,330. Nifty is also likely to have a wider trading range on either side in the coming week.
The weekly RSI stood at 64.43. It has marked a fresh 14-period high, which is a bullish indication. The RSI remains neutral and does not show any divergence against price. The weekly MACD is bullish, as it trades above the signal line. The RSI also appears to be breaking out from a sloping trendline.
A strong White Body occurred on the candles. This shows a directional consensus among the market participants. Pattern analysis suggests Nifty is surging towards the lower trend line of the channel which it violated on its way down. If Nifty has to test that pattern resistance, it would offer some room on the upside to cover. Importantly, it is now trading above key moving averages and well within the primary uptrend.
All in all, we expect external news flow to drive the domestic market in the days ahead. Importantly, the even larger factor that may continue to fuel the market will be the weakness in the dollar. If that persists, it may push the market higher.
However, any consolidation or a mild pullback of the Dollar Index may temporarily put some brakes on its unabated rise that we have been witnessing. Given this, we recommend following the up-move in the market by staying stock and sector specific in approach. Staying with the banking and other defensives can help if there is any consolidation.
Broadly speaking, a positive outlook is advised for the coming week.
In our look at 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 the broader market will continue to rule the roost in the coming week as well. Nifty Smallcap and Midcap100 indices have entered the leading quadrant. Along with these broader indices, Nifty Metals, Auto and IT groups are placed in the leading quadrant. These broader indices and groups are set to relatively outperform the broader Nifty500 Index in the coming weeks.
The Nifty Services, PSU Banks, Bank Nifty, Realty and Media sectors are placed in the improving quadrant and appear to be maintaining their relative momentum against the broader market. They are also likely to stay resilient and improve their performance in the coming days.
FMCG and consumption packs are in the lagging quadrant, but they appear to be attempting to consolidate. These groups might put up stock-specific and isolated performance in the immediate short term. Nifty Infra and Pharma indices are in the weakening quadrant. These groups are likely to relatively underperform the broader market along with the Nifty PSE group, which is seen rotating negatively inside the lagging quadrant.
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 markets) 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)