Dalal Street week ahead: Protect profits ahead of F&O expiry & Budget

After starting the week on a corrective note, the market recouped some of its losses on the last two trading sessions of the week. The market has remained volatile in the last few days, and the headline Nifty index has traded in a wider-than-usual range. The index oscillated in an over 340-point range, but did not see any clear breakout and remained shy of the all-time high mark.

The headline Nifty index ended a volatile week with a net loss of 104 points, or 0.84 per cent. Taking a look at the broader technical structure, Nifty has not moved past the pattern resistance that exists in the form of a rising trend line. The volatility index, India VIX, rose 10.14 per cent to 15.56 after remaining flat in the week before this week.

Looking at the weekly charts and reading them along with the shorter-term timeframe charts, it appears that Nifty has put an intermediate top in place. The 12,430 level will be crucial to watch, and the next one being the expiry week, we expect rollover-centric activities to dominate proceedings.

In the last two sessions, the up-move has come with a net reduction in open interest, which indicates short covering at lower levels.


Nifty is likely to see a tentative start to trade in the coming week. The 12,410 and 12,460 levels will act as resistance while support will come in lower at 12,100 and 12,000 levels. In the event of any correction in the market, the trading range is expected to get broader than usual.

The Relative Strength Index (RSI) on the weekly chart stood at 63.28; it remained neutral and did not show any divergence from the price. The weekly MACD remains bullish, as it trades above its signal line. The slope of the histograms appears to be declining, which shows a gradual loss of momentum on the weekly charts.

An Engulfing Bearish Candle has appeared. Such a formation should be ignored as it has appeared at the high point, and may potentially stall the up-move. However, a confirmation will be required in the next bar.

Pattern analysis of the weekly charts showed despite the incremental high formed on the charts, Nifty has not penetrated the pattern resistance that exists in the form of a rising trend line. Nifty will have to penetrate the referred pattern resistance comprehensively for a sustainable upward breakout.

Despite marking incremental highs during the week, Nifty has not penetrated the pattern resistance in the form of a rising trend line. Unless this happens, we are unlikely to see any significant breakout in the coming week. The market will remain vulnerable at higher levels and volatility is likely to increase further given the forthcoming expiry of the current derivative series.

Traders are strongly advised not to create excessive exposures unless a breakout is achieved and the market sees through the Union Budget. While avoiding leveraged positions, all up-moves, if any, should be utilised to protect profits at higher levels.

In our look at Relative Rotation Graphs, we compared various sectoral indices against CNX500 (NIFTY 500 Index), which represents over 95% of the free-float market-cap of all the listed stocks.




A review of Relative Rotation Graphs (RRG) showed that sectoral rotation has continued on the expected lines. The Metal and Realty indices have continued to advance while remained firmly placed in the leading quadrant. Just like the previous week, Bank Nifty and the Financial Services Index appear to be losing its relative momentum steadily. This means individually they may be doing good, but speaking on a relative basis, other pockets are performing better.

The Nifty Auto Index has slipped further into the weakening quadrant. The FMCG, Consumption and Energy packs are seen rotating in the lagging quadrant.

These groups are likely to underperform the broader market on a relative basis. The Infrastructure index remains in the lagging quadrant but it is attempting to arrest its underperformance and improving its relative momentum. However, it is yet to complete its bottoming out process. The IT index has advanced further into the improving quadrant and is expected to start relatively outperforming the broader market.

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)