Dalal Street week ahead: Strong resilience on downside, but Nifty will struggle to top 200 DMA

In a relatively less volatile week, Indian equities continued to surge powered by a liquidity-driven rally. After gaining 2.72% during the week before this one, Nifty added to the gains this week as well. The index narrowed the moving range further to just 359 points in the last five sessions as volatility declined.

Despite the rangebound movement, Nifty did not violate any of the key levels on either side and closed near its key resistance point. The expiry of the June series derivative contracts also played its part during the week and it dominated market moves on the higher side.

In a less volatile environment, the headline Nifty index ended with net gains of 138.60 points, or 1.35 per cent on a weekly basis. There are higher chances of intermittent moves on the higher side. Nifty futures have closed with a steep discount of 65 points. After the surge seen in the previous session, Nifty futures have added a big 9.37 per cent, or over 9.96 lakh shares, to net Open Interest. On the other hand, Nifty has closed just a few points above the crucial 200-week moving average, which currently stands at 10,377.

Volatility declined during the week, as volatility index INDIA VIX came off 4.10 per cent to 28.74 on a weekly basis. This was the second week in a row when volatility has declined.

The 10,550 and 10,665 levels are likely to offer stiff overhead resistance to Nifty in the coming week. On the lower side, supports are expected to come in at 10,285 and 10,110 levels.



The weekly RSI stood at 51.68. It remains neutral and does not show any divergence against price. From the patterns point of view, it is moving inside a broad channel with moderately falling tops. The weekly MACD remains bullish as it trades above the signal line.

A Spinning Top appeared on the candles. This candle has a small real body and signifies lack of conviction among market participants. It has significance if it occurs near any key resistance point. In the present case, it has emerged near the 200-day moving average.

Pattern analysis showed Nifty has nearly completed one of its sharpest pullbacks in history. The current pullback has classically halted near the 200-day moving average. It would be extremely important to observe the closing levels of the coming week to see the price action of the index against this crucial resistance point. In event of any correction, Nifty will have support from a decade-old rising trend line, which it had violated earlier.



The market is currently placed at an important juncture. On one hand, F&O data for the immediate short term shows some likely extension of the move, or at least strong resilience on the downside. On the other hand, a close near the 200-day moving average should not be taken lightly, as Nifty is highly unlikely to disregard this level and move past it in the first attempt.

We recommend approaching the market cautiously unless Nifty either resolves this resistance point or shows a mild corrective move going ahead.

In our look at Relative Rotation Graphs, we compared various sectoral indices against CNX500 (Nifty500 index), which represents over 95% of the free-float market-cap of all the listed stocks.



A review of Relative Rotation Graphs (RRG) showed while a broader sectoral rotation is happening on the expected lines, the sectors continue to evidently change hands in leading the moves. Nifty Infrastructure, Energy and Commodities indices remain in the leading quadrant, but they seem to be showing signs of tiredness. These groups will continue to relatively outperform the broader market, but the strength and momentum may continue to diminish in the coming days.

On the other hand, Nifty Pharma index has entered the weakening quadrant and appears to have topped out. Nifty IT, Consumption and FMCG indices have advanced further into the weakening quadrant. These groups are likely to collectively underperform the broader Nifty500 index on a relative basis.

Media, Metal and Auto indices are placed firmly in the improving quadrant. They appear to be maintaining their relative momentum and are set to see stock-specific outperformance over the coming week. The PSU Bank Index has entered the improving quadrant. Being away from the centre point, this group is now set to offer much better alpha going ahead. Apart from this, Nifty Realty, Bank Nifty and Services groups appear to be continuing to improve their relative momentum. Nifty PSE index is rotating unfavourably and is moving back towards the weakening quadrant again.

Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, 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 Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)