Dalal Street week ahead: Market indecisive, approach with caution

Last week, we had mentioned about possibilities of the market marking a fresh high. The benchmark Nifty50 index did mark a fresh high during the week gone by, but in the end it remained extremely rangebound and ended flat with a negligible gain of 14.75 points, or 0.15 per cent, on a weekly basis. At this juncture, we would like to repeat what we have said over the past couple of days. The market needs to be approached with great caution at this stage.

Even with the underlying trend remaining perfectly intact, the market remains prone to short-term corrective action given its overbought nature. The coming week will see the 9,710 and 9,775 levels acting as immediate resistance. Supports may come in at 9,610 and 9,550 levels.
The Relative Strength Index or RSI on the weekly chart stands at 77.2341. It is a bullish signal as it has marked a fresh 14-period high. At the same time, it trades in the overbought zones. The weekly MACD remains bullish but again this too trades in the overbought range. A spinning top on the candles on the weekly chart further suggests caution and indecisiveness among market participants.

Pattern analysis suggests the breakout that has occurred between 8,900 and 8,950 levels perfectly remains in force.



Overall, though the primary undercurrent certainly remains buoyant, we cannot ignore the fact that both major lead indicators remain heavily overbought. The Nifty50 remains overbought on the Stochastic too. Given these facts, the coming week is certain to see either rangebound movement in the manner we saw in the previous week or will show some minor corrective moves. It is advised to approach the market with great caution.

A study of the Relative Rotation Graphs or RRG shows pockets of outperformance will be seen in Realty stocks. On a weekly basis, they may slow down momentum. We will see IT and metals stocks consolidate their performance and individually inch upwards. Auto stocks are likely to outperform and we will also see relative outperformance from FMCG and Bank Nifty stocks. Energy and Media stocks will remain laggards.

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 the Nifty index and they 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)