Dalal Street: Dalal Street Week Ahead: Shifting Focus To Index Stocks

After spending nearly 10 weeks below the bearish trendline pattern resistance and gaining support at key levels, the Nifty has finally attempted to break above this significant resistance pattern. In the short trading week that was punctuated by a holiday, the market continued to gain momentum while staying above the crucial support.

Volumes remained lower throughout the week through just three full trading sessions. The trading range also remained narrower than usual during these days. The index saw itself moving in a range of 201.90 points during these days. The headline index eventually ended with a net gain of 210.50 points (+1.20%) on a weekly basis.

GemstoneET CONTRIBUTORS Re-examining the technical structure of global markets, the bullish divergence of the leading indicators seen on global indices has been heavily weighted; especially Dow, Nasdaq and S&P500. It was seen that if the global market is a potential bottom for itself, we would see a stronger pullback in the Indian market as we are relatively stronger than the US market.

With things moving along the expected lines, there’s a higher chance of Nifty expanding its upward movement and moving to 18000 levels and above.

Given the strong set-up of global trade, Nifty is likely to see a stronger start to the trading week. The levels of 18000 and 18385 can act as potential resistance points; the supports are likely to come in at 17600 and 17450 levels. The trading range is likely to widen again in the coming days.

The weekly RSI is 58.59; it remains neutral without showing any deviation from the price. The weekly MACD is bullish and remains above the signal line. The histogram, which narrowed strongly, widens again; this signals a return of momentum in the upward movement that the markets have seen recently.

The pattern analysis shows yet another attempt by the Nifty to break above the all-important pattern resistance of a bearish trendline. This trendline starts from the lifetime highs of 18600 and joins the subsequent lower highs.

Overall, the S&P500 has not only respected the 200-week MA and recovered while putting its bottom in place, but it has also laid a solid foundation for the continuation of the bullish move in domestic markets.

Monday is likely to have a strong start to the week; it would be critical to see the Nifty move past 18000 levels and stay above that. It is recommended that you focus on the index stocks now. Large caps are also likely to outperform the broader universe relatively. A positive outlook is recommended for the coming week.

In our look at Relative Rotation Graphs®, we compared several sectors with CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all publicly traded stocks.

MarketET CONTRIBUTORS The analysis of relative rotational charts (RRG) shows that Nifty Bank, PSU Bank and Metal Indices are within the leading quadrant; they are likely to outperform the broader markets relatively. The Nifty MIDCAP index is also within the leading position, but it is seen to be losing its relative momentum sharply and moving towards the weakening quadrant.

The Nifty Financial Services Index has rolled within the weakening quadrant. The consumption, FMCG and auto indices are also in the attenuation quadrant. We see the Nifty Realty and Energy indices languishing in the lagging quadrant.

The Nifty Infrastructure Index has rolled within the improving quadrant. In addition, the IT, Commodities, Media, Pharma and PSE index are also in the improving quadrant, along with the Nifty Services Sector Index, which is seeing its relative momentum against the broader markets lose.

Important Note: RRGTM charts show 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, is a technical advisory analyst and founder of EquityResearch.asia and ChartWizard.ae based in Vadodara. He can be reached at milan.vaishnav@equityresearch.asia

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