Dalal Street week ahead: Financials lose momentum; realty & metals take charge

With the geopolitical tensions subsiding, the market spent a quiet week even as it continued to post smaller incremental gains. The trading range also remained capped, as the market oscillated in a capped range. Showing little volatility, Nifty made minor advancements on the higher side, though it remained below the critical pattern resistance levels on the weekly charts. The quiet week saw Nifty end with a net gain of 95.55 points, or 0.78 per cent, on a weekly basis.

From a technical perspective, Nifty is critically poised. The market has posted incremental gains, but is yet to see any clear breakout on the daily as well as the weekly charts. Nifty currently trades just below the important pattern resistance, as evident from the chart. A convincing move above the 12,400 level will be needed to attempt a sustainable breakout on the higher time-frame charts. The volatility factor also remained under check as India VIX remained flat and gained just 0.36 per cent compared with a 10.89 per cent rise during the week before.

The market is likely to see a stable start to the week. The trading range is expected to widen from previous week. The 12,450 and 12,490 levels will offer stiff resistance overhead, while supports will come in at 12,260 and 12,185 levels.

The Relative Strength Index (RSI) stands at 67.41. It has made a marginal 14-period high. However, the RSI does not show any divergence against price. The weekly MACD remains bullish as it trades above the signal line.

A white body emerged on the candles. Apart from this, no other formations were observed on the charts.

Pattern analysis on the weekly chart showed Nifty has marked an incremental high on the charts, and it appears to be attempting a breakout. However, the index, at present, trades below its multi-month-long trend line, which is preventing a clean breakout.

After halting its up-move in the 12,300-12,350 zone for four weeks in a row, Nifty has attempted to move above this zone. However, as mentioned below, it has a major pattern resistance to deal with near the 12,400 level. The index will have to move past this level convincingly in order to attempt a sustainable breakout going ahead. We recommend continuing to protect profits at higher levels as the internal strength is not as much as it should have been at the current high levels.

It will also be prudent to continue staying stock-specific as well. A cautiously 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 stocks listed.

The review of Relative Rotation Graphs (RRG) showed some vital sectoral rotation has been taken place over the previous week. Financials showed good resilience and relative outperformance over the past couple of weeks, but they are now slowing down. The Financial Services index and Bank Nifty are seen losing their relative momentum, despite staying in the leading quadrant. The PSU Bank Index is also seen faltering midway while remaining in the improving quadrant.

On the other hand, the Realty, Metal and Services sector indices are appearing to be assuming leadership positions with respect to relative outperformance. The Metal Index has crawled into the leading quadrant, whereas the Realty and Services indices are seen crawling further into the leading quadrant. The IT index appears to have completed its bottoming out process as it has just entered the improving quadrant.

Apart from this, Auto, Energy, Consumption, FMCG, and PSE indices continue to slow down further and are likely to underperform the broader markets relatively.

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 milan.vaishnav@equityresearch.asia)