Dalal Street week ahead: Nifty holding its grip; wait for directional bias to show

The domestic equity market struggled throughout the week gone by to keep its head above crucial levels and ended the week with modest gains. On the anticipated lines, the market remained volatile through the week, as Nifty oscillated in a 385-point range.

Through the week, the market digested the reforms announced by the government to oil the slowing economy and also the recurring threats of intensifying trade war between the US and China. Amid this mixed setup, the headline Nifty managed to end with a net weekly gain of 193 points or 1.79 per cent. August remained negative, with Nifty losing 94 points, or 0.85 per cent, after oscillating in a 544-point range.

The 11,100-11,210 zone remains extremely treacherous for the market. While the 11,000 level remains the neckline of the rounding top formation that Nifty has violated, the 50-week moving average lies at 11,115, while the 200-day moving average stands at 11,209. This shows that the index has a stiff overhead resistance to deal with going forward, and it would be imperative for Nifty to keep its head above the 11,000 mark.

In the coming week, the market will be digesting further signs of the slowdown as visible in the GDP numbers, which have hit a six-year low, and also the auto sales numbers due on Monday.

We expect a soft start to Tuesday’s trade after an extended weekend, as Monday will be a trading holiday on account of Ganesh Chaturthi, as it will also have to adjust to the global trade setup as well.

Nifty may see the 11,160 and 11,255 levels acting as key resistance in the coming week while supports are likely to come in at 10,960 and 10,780 levels. Just like the previous week, the trading range may remain wider than usual in the week ahead.

The weekly RSI is at 42.4994; it remains neutral and does not show any divergence against price. The weekly MACD remains bearish and trades below its signal line. A Spinning Top has occurred on the candles, portraying a struggle to stay at a particular level. It also shows indecisiveness among market participants.

As long as Nifty keeps its head comfortably above the 11,000 level, it will be able to avoid any weakness from dominating market proceedings. However, any slip below the 11,000 level will lead to some serious weakness in the immediate short term. Currently, the market is trapped in a broad trading range.

Though Nifty has strong support near 10,800, it has very stiff overhead resistance to deal with just above the current levels. We advise investors to stay away from any heavy exposure on either side unless a directional bias is established.

In our look at Relative Rotation Graphs, we compared various sectors against CNX500 (Nifty500 index), which represents over 95% of the free float market cap of all the stocks listed.

The Relative Rotation Graphs (RRG) depicts a very precarious setup for the market. FMCG and IT are the only two indices that are firmly placed in the leading quadrant. The Consumption Index, though placed in the improving quadrant currently, is strongly improving its relative momentum against the broader market. These three groups are likely to distinctly outperform the broader market on a relative basis.

Apart from this, other key indices like Bank Nifty, PSU Banks, Financial Services, Metals, Infrastructure, Realty and Energy are seen inching higher while being paced at different points on the weakening and the lagging quadrants.

Some stock-specific performance from the Auto Index cannot be ruled out, as it is improving its momentum while still being placed in the lagging quadrant. Pharma Index is in the improving quadrant and is expected to remain resilient compared with other groups.

Important Note: RRGTM charts show you 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 at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)