Don’t expect any runaway rally or a breakdown in market soon

In my last weekly note, we had categorically mentioned that the Nifty50 will head nowhere. It will neither see any breakdown, nor will it see any runaway rally. Keeping in line with this analysis, the benchmark Nifty50 is headed nowhere, but consolidated in a capped range.

The Nifty50 ended the week with net gains of 19.65 points, or 0.20 per cent. We keep our analysis on similar lines for the coming week as well.

We do not see the Nifty50 seeing a major rise, given the divergent signals of the daily and weekly charts. We will see the market facing resistance at higher levels. On similar lines, we do not see any major breakdown on the technical charts as well.

The Nifty50 should face resistance at 9,950 and 10,150 levels in the coming week while supports will come in at 9,810 and 9,685 levels.

The Relative Strength Index or RSI stood at 64.5047 on the weekly chart. It remains neutral showing no divergence against the price. The weekly MACD stays bearish, as it trades below the signal line. On the candles, a long lower shadow occurred. Such signals are usually bullish, if they occur near the support levels or when a security is oversold. However, under the present circumstances, it holds very little significance.



Pattern analysis shows the market is trading well within the 18-month upward rising channel as evident on the charts. Even if the index shows more retracement but stays within this channel, it would mark the continuation of a perfectly healthy correction.

Overall, we do not expect the market to make any major headway on the upside during the coming week. We do not expect any major downside either. The market will attempt to take cues from the outcome of the Jackson Hole symposium and is likely to remain volatile. A distinctly weak setup on US treasuries and 10-year US bond yields is likely to act in favour of emerging markets.

The domestic market has underperformed its Asian peers in the three previous sessions. This will keep the downside limited and keep the Nifty50 in a defined trading range over the coming week.

A study of the relative rotation graph or RRG shows metal stocks are distinctly gaining momentum and will continue to remain strong in the coming week. Energy stocks along with metal and IT stock are likely to continue relative outperformance compared with the Nifty50.

Broader indices such as CNX100 and Nifty Junior (Nifty Next 50) are seen to be gaining momentum and stock-specific performance will be seen in these two indices as well. Media, FMCG, CNX Midcap, realty and pharma stocks are likely to lose momentum on a weekly basis. Auto stocks are likely to continue underperformance.



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 the Nifty50 index and should not be used directly as buy or sell signal.

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