In our previous Weekly Note, we had mentioned that despite remaining structurally damaged, the Equities might witness a technical pullback. The levels of 10026 which was the Weekly 100-Week MA last week (which is 10050 presently), acted as a support for the Markets. The benchmark Index NIFTY50 witnessed a much overdue relief rally and it ended the week with gains of 523 points or 5.21% on a Weekly basis.
There was immense volatility in the Markets all during past several weeks. This is seen from the fact that as of Month ending October, the NIFTY had lost over 530-points on Monthly basis despite the pullback that had already began by the time the month ended. Now, as of this week, the NIFTY ended the week with weekly gains of over 500-points!
As we step into next week, there are couple of technical and non-technical things that will affect and shape the Markets. Let us first look at the technical things. The NIFTY has formed a base for itself for the immediate near term. Speaking with reference to the Weekly Charts, the 100-Week MA of 10050 shall be the lower range for the Markets and the upper resistance will come in near the 50-Week MA which stands at 10708.
Therefore, we can safely presume that the NIFTY has, as of now, formed a broad 650-point range for itself.
Coming to non-technical factors, we have very truncated coming week. We have Diwali next week and we will have just three full working days in the coming week while discounting Wednesday as it will just have a token one-hour Mahurat Trading Session. Given the festivities, the volumes typically remain lower during such times and we hardly see markets taking a significant directional call in such periods.
We can fairly expect the Markets to remain broadly range bound with 10650 and 10750 acting as resistance area for the coming week. Supports come in at 10400 and 10235 zones.
The Weekly RSI is 45.1204 and it stays neutral against the price showing no divergence. Weekly MACD stays bearish while trading below its signal line. An emergence of a big white candle near the 100-Week MA reinforces the importance of this support area for the Markets.
Speaking purely with reference to the coming Week, the NIFTY has some more room left for upside. However, with each level after approaching 10600 and above, NIFTY will see itself being pushed into some consolidation again. We recommend staying light all throughout next week while keeping purchases limited in select sectors which are likely to outperform the general markets.
Sector Analysis for the coming week
In study of Relative Rotation Graphs, we compare various sectors against CNX500 which represents over 95% the free float Market cap of all the stocks listed.
Relative Rotation Graph (RRG) shows that ENERGY pack has now entered the Weakening Quadrant after consistently losing relative momentum over last couple of weeks. It will now start taking a back seat. Metals, Pharma and IT are remaining in the Leading Quadrant. Though they are seen slightly losing the momentum over previous week, they are still likely to relatively out-perform the Markets. BankNifty, Services and Financial Services packs are seen fiercely consolidating its positions. PSE Stocks (Public Sector Enterprises) along with Media and Infra are also seen improving their relative momentum and will be seen putting up resilient performance. No major performance is expected from PSU Banks, Realty and Auto packs.
Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst