D-Street week ahead: Auto, bank stocks should do better in rollover week

Indian equities consolidated on Friday with nominal gains of 1.55 points. In our previous weekly note, we had mentioned that we do not expect any significant weekly gains given the overbought nature of the market. In line with this, the benchmark Nifty50 ended the week with minor gains of 27 points, or 0.29 per cent.

In the coming week, we do not expect any runaway rise in the market. The overbought indicators and the expiry week will dominate the directional bias that the market may show. We expect minor corrective actions with limited downsides and consolidation to continue through the coming week. The 9,490 and 9,550 levels are expected to pose stiff resistance. Supports are expected to come in at 9,350 and 9,280 levels.
The Relative Strength Index or RSI on the weekly chart stood at 72.3968. It is bullish as it has made a fresh 14-period high but traded in the overbought territory.



The weekly MACD is bullish. but it appears to be losing momentum to some extent. On the candles, a long upper shadow has occurred. This has bearish implications and it is significant as such formations have occurred near high levels. It has potential to continue to temporarily halt the upward move.

Pattern analysis depicts a buoyant, but a tired picture. The market broke out on the upside from the triple top formation and has been inching upwards since then. However, at present, the lead indicators are oversold and some signs of minor fatigue are evident.

All and all, though the market has kept its primary trend intact on the upside, there are chances that we will see minor corrective actions and consolidation through the coming week. Rollovers will dominate the coming week while some outperforming sectors will take a breather. We can expect good performance in select stocks from auto, banks and pharma sectors.

A study of Relative Rotation Graphs or RRG shows that auto and PSU banks will continue to improve their relative outperformance in the coming week, with Energy and services stocks further slowing down their momentum.



CNX IT and Pharma indices may relatively underperform during the coming week. Metals will look to consolidate its performance and we will also see select out-performance from the Nifty Next50 pack.

Important Note: RRG™ charts show you the relative strength and momentum for a group of stocks. In the above Chart, they show relative performance as against NIFTY Index and should not be used directly as buy or sell signals.

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)