D-Street week ahead: Nifty awaits clean breakout, momentum positive

The previous week remained volatile owing to the outcome of Gujarat elections, but speaking on an overall note, it ended on a better-than-expected note. The benchmark Nifty50 ended with net gains of 159.75 points or 1.55 per cent on a weekly basis.

We expect this positive intent to continue, but we still see the chances that a clean breakout may still await the market despite the index ending at a life-time closing high.

Next week will be week with Monday being a trading holiday. Next week will still remain susceptible to profit taking at higher levels as the market awaits a clean breakout. Also, a bearish divergence persists on the lead indicators.


Next week, the 10,535 and 10,670 levels are likely to play out as major resistance. Supports will come in at 10,410 and 10,280 levels.

The Relative Strength Index or RSI on the weekly chart stands at 63.6098. A bearish divergence is evident on this indicator, as the Nifty has set a fresh 14-period high, while RSI has not. Also, it has continued to form lower tops and is yet to break out of this formation. The weekly MACD is still bearish even as it trades below the signal line. No major formations were observed on the candles.

Overall, though the market may have ended at a life-time closing high, it is evident that a clean breakout is still awaited. Two factors would weigh against the market achieving a clean breakout.

First, in an instance the market may inch higher and encounter pattern resistance from the 22-month-long rising trend line. Secondly, there is a clear bearish divergence on the lead indicators, which may prevent the market from either giving a clean breakout or sustaining at higher levels.

Cumulatively speaking, all these factors may keep the market exposed to bouts of corrective profit taking at higher levels. We recommend approaching the market on a cautious note with a focus on protecting profits at each higher level.

A study of Relative Rotation Graphs or RRG showed that the auto pack has shown considerable improvement in its relative performance.

This is likely to continue in the coming week as well. Along with this, the midcap universe is likely to outperform along with the broader markets. Metals and pharma are evidently losing momentum and this under-performance is likely to be seen in the coming week as well.

The FMCG, realty, PSU Bank and media sectors will see select components relatively outperform the market. The energy pack is not likely to see any major action this week.

Important Note: RRGTM 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, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)