Dalal Street Week Ahead: Every technical setback that could happen will continue to be limited in scope

Dalal Street Week Ahead: Every technical setback that could happen will continue to be limited in scope – Mail Bonus

In the week that was shortened due to the trading break due to Eid, the Indian stock markets were weak for the most part during the shorter 4-day trading week, where it ended in a minus in three of four rounds.

Among them, the last trading day on Friday remained particularly sluggish. The markets also witnessed a wider trading range than usual, with the Nifty fluctuating at 790 basis points before ending in a deep cut.

The markets also reacted to two interest rate hikes and an increase in volatility. The Nifty Main Index ended with a net loss of 691.30 points on a weekly basis. The last four business cycles were particularly detrimental from a technical point of view. Markets took on two interest rate hikes; one from the Central Bank that was planned and expected, and the other on domestic fronts where the RBI trampled on repatriation and reverse repatriation rates ahead of schedule.

Despite reacting negatively to this, Nifty also broke and closed below the 50-week MA which now stands at 17008. It also ended up breaking the pattern of trendline support. In the process, Nifty has immediately lowered its resistance level to an even lower level of 17,000. If any setbacks occur, markets will face stiff resistance at this point. The fluctuations also increased. INDIAVIX rose 9.46% to 21.25 on a weekly basis. Next week, markets could try to get some respite and stability. Levels 16650 and 16900 will act as resistance points. The supports come in at 16310 and 16160 levels. The trading week next week is expected to be wider than usual.

The weekly RSI is 40.26; it shows a bullish deviation from the price. Although Nifty has hit a 14-time low, the RSI did not and this led to a bullish deviation of the RSI against the price.

The weekly MACD is bearish and trades below the mark line. A large black candle appears on the popularity list. It not only showed a strategic consensus on the heights, but it also increased the credibility of the resistance of the 17000 points in the form of pattern breaks as well as the 50-week MA.

From here, we could see the market trying to stabilize the next five trading rounds, but at the same time, withdrawals that could occur will continue to be limited in scope.

In recent trades, markets have accumulated large short positions in the system, as the derivative data indicate. It is strongly recommended to avoid shorts at the current level. Even if there is a weakness in the next few days, these existing shorts can contribute to a strong short-term number.

Such a technical setback, even if driven by short-term coverage, is imminent and timely. While continuing to have low beta stocks, a cautiously positive outlook is recommended for the day.

When we looked at Relative Rotation Graphs®, we compared various sectors with the CNX500 (NIFTY 500 Index), which represents over 95% of the market value of all listed stocks.

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The analysis of relative rotational graphs (RRG) shows that sectors such as energy, PSE, infrastructure, commodities, pharmaceuticals and metals that are at the forefront will continue to show good performance and will show good relative performance compared to the broader NIFTY500 index.

The PSU Bank Index and the Media Index are in the weakening quarter. They may continue to perform well on individual notes, but relative performance may be compromised.

The IT index, the service sector, Bank Nifty, the financial services and the car index are in the second quarter and are clearly relatively lacking in the markets.

On the other hand, the real estate index and the Midcap 100 index are also in the second quarter, but they seem to be improving relative momentum towards wider markets. Nifty FMCG and Consumption indices are in the improving quarter and could give a good show in the coming days.

Important note: RRGTM charts show relative strength and momentum for a group of stocks. In the chart above, they show relative performance relative to the NIFTY500 index (broader markets) and should not be used directly as a buy or sell mark.


Milan Vaishnav, CMT, MSTA, is a consulting engineer and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. You can reach him at milan.vaishnav@equityresearch.asia

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