Dalal Street Week Ahead: Nifty tech charts giving mixed signals; upside looks capped

After locking in robust gains in July, Nifty has kicked off August on a positive note. In the last five sessions, Nifty traded in a 374-point range before closing the week with modest gains. The index stayed above its critical levels on both the daily and weekly time-frame charts. Despite remaining prone to profit taking at higher levels, the index did not make definite moves on either side.

After oscillating in a wider range than the one where it moved in the previous week, Nifty ended the week with net gains of 140.60 points, or 1.27 per cent.

The market continues to pile on incremental gains. However, this time, it has made a lower top and bottom on the weekly charts. Nifty has managed to keep its head above its key 50-week moving average at 10,912 and 100-week moving average at 11,018. Volatility also continued to decline, as INDIA VIX came off 6.68% to 22.58. The 11,000-10,900 zone is crucial for Nifty, as it represents important support levels.

On the higher side, the index faces resistance at the trend line that it violated earlier when it came down.

The market is likely to see a tentative start to the coming week with the upside capped. The 11,290 and 11,350 levels will act as strong resistance, while supports will come in at 11,000 and 10,910 levels.


The weekly RSI stands at 59.84: it remains neutral and does not show any divergence against price. The weekly MACD remains bullish, as it trades above the signal line. A White Body has occurred on the candles. Apart from this, no other important formation was seen.

When the index came off its highs, it violated a channel formed over the past 12 months. Currently, Nifty has twice faced resistance just below the lower trend line of that channel, which was a support when Nifty was above that line, but that line is now expected to act as a strong resistance. This makes the 11,300-14,00 zone a strong resistance for Nifty.

There is no sign which may point towards any serious correction in the market. That said, Nifty appears overstretched on the short-term charts and this may force the market to go into consolidation. This means though we may not expect any serious corrective move, any runaway up-move is also not likely.

So long as Nifty remains below the 11,300-11,400 zone, up-moves, if any, will continue to face resistance, making the market in general vulnerable to profit taking. We recommend approaching the market selectively and avoiding major exposures unless there are some consolidation moves, which will make the current vertical move healthier. Over the past couple of days, the market breadth has not remained as strong as it should be, and this remains a concern for the near term.


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

A review of Relative Rotation Graphs (RRG) shows one should avoid some sectors despite their individual good performance. Nifty Energy Index is about to crawl inside the weakening quadrant, while Nifty Commodities group has already entered that quadrant. The Infrastructure, PSE, FMCG and Consumption groups are rotating negatively in the weakening, lagging quadrants. These groups may offer some stock-specific performance, but are unlikely to put up a great show in a collective basis.

The IT group has made a strong rotating back move inside the leading quadrant. The Auto index continues to remain in the leading quadrant. These two groups are likely to relatively outperform the broader market.


Apart from this, Nifty Realty, Bank Nifty, PSU Banks Services and Financial Services groups are placed comfortably in the improving quadrant and appear to be rotating in a north-easterly direction, while maintaining their relative momentum. They are set to offer a resilient show along with the IT and Auto packs.

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 market) 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)