In our previous weekly note, we had mentioned about the critical importance of the 10,820-10,850 zone and the likelihood of volatility creeping into the market.
Much on the expected lines, the Nifty50 struggled throughout the week to move past the resistance zone at 10,820 and 10,850 levels, but still ended between these critical levels.Though Nifty has attempted to move past the key resistance zone, it still rules below the 10,850 mark.
This level, therefore, remains critical for the coming week.
It would be important for the Nifty to breach this level on the upside for any meaningful upward move.
Unless this happens, it may slip into some more consolidation.In the meantime, throughout the week, Nifty continued to face resistance at this important pattern resistance area.
The index ended the week absolutely flat with a negligible gain of 4.15 points, or 0.04 per cent, on a weekly basis.As we approach FO expiry, rollover-centric activities will dominate the week ahead.
The 10,890 and 10,985 levels will be immediate resistance for Nifty during the coming week, supports will come in lower at 10,760 and 10,675 levels.On the weekly chart, the Relative Strength Index or RSI stood at 60.8638.
It showed no failure swings, but indicated a mild bearish divergence.
This is because while the Nifty has reported a fresh 14-period closing high, the RSI has not.
It is possible that Nifty is attempting to break out of a pattern.
The weekly MACD remains bullish even as it trades above the signal line.A pattern resembling the Hanging Man occurred on Nifty charts.
Since this has occurred after a pullback, we might see the Nifty surge get stalled.
However, this needs confirmation.Overall, the Nifty50 is yet to move past the pattern resistance, which comes from a falling trend line that joins the high of 11,170 with the subsequent lower tops.
Though the likelihood of the Nifty breaking out above this pattern resistance is high, until it actually moves past and closes above 10,850 mark, we cannot take Nifty to be completely out of the woods.
We recommend avoiding shorts and keeping the overall exposure at modest levels.While extremely selective buying may be done, a cautious approach with a tinge of optimism is what is advised for the coming week.
Before taking any major directional call, confirmation to this attempt to move past the pattern resistance should be awaited.A study of Relative Rotation Graphs shows Bank Nifty has continued to relatively outperform the general market and the PSU bank pack has continued to further improve its relative momentum.
The coming week will expect relatively better performance from Bank Nifty and PSU banks to some extent.
The financial services pack along with services sector is likely to outperform relatively.Stock-specific performance is likely from the FMCG Pack.
Though it remains in the leading quadrant, it is losing momentum.
No improvement in the momentum is seen in broader indices like CNX100, 200 and 500 along with Nifty Junior and also the Nifty Midcap universe.Realty might see individual performances.
No major show is expected from auto and metals packs.
Pharma is likely to remain strong and improve its relative outperformance.Important Note: RRGTM charts show you the relative strength and momentum for a group of stocks.
In the above Chart, they show relative performance as against Nifty Index and should not be used directly as buy or sell signals.(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research Advisory Services, Vadodara.
He can be reached at milan.vaishnav@equityresearch.asia)