Trade setup: Broader market setup weak, but Nifty may attempt pullback

In a three-day working week, the domestic stock market moved on the expected lines and stayed within a limited range. As anticipated, the Nifty did not make any directional move and remained within the 50-week and 100-week moving averages.

After flirting with the 50-week moving average, which stands at 11,140, and testing weekly high of 11,144, the headline index retraced and ended with a net weekly loss of 61.85 points or 0.56 per cent.

As mentioned in the previous weekly note, the broader technical setup continues to be weak. However, few indicators suggest the market may attempt some bounce. If it happens, it will be limited, and Nifty will continue to face pressure at higher levels. On the downside, the 100-week moving average, which is at 10,870 currently, will remain a crucial level to watch in the coming days.


The global setup has improved a bit over the weekend, and this may reflect on the opening of Asian markets. The Indian market, too, is set to see a stable opening and may remain range-bound in initial trade. The 11,140 and 11,230 levels will act as key resistance points for Nifty while supports will come in at 11,900 and 11,810 levels.

The weekly RSI stands at 40.9690; it remains neutral and does not show any divergence against price. The weekly MACD continues to remain bearish and trades below its signal line.

No significant formations are seen on the candles. Pattern analysis on the weekly chart showed Nifty took support on the 100-week moving average, which currently stands at 10,870, after breaching the trend line of the secondary rising channel.

Over and above this, the index has formed a rounding-top formation, which will be potentially a bearish signal going ahead.

The market is likely to stabilise and attempt some technical pullback in the coming week. However, all such pullbacks, if any, will face resistance at the 50-week MA at 11,140. The market will become vulnerable at higher levels, given the weak broader technical setup. Volatility, too, will remain ingrained and may rise in the coming days. While avoiding aggressive bets, a highly stock and sector-specific approach is advised for the week ahead.

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

The review of Relative Rotation Graphs (RRG) shows IT, FMCG and consumption sectors are likely to remain safe haven for investors and traders alike in the days to come. The FMCG and consumption indices have advanced firmly in the improving quadrant while maintaining their relative momentum against the broader market. The IT pack is seen rapidly advances to enter the improving quadrant. The Media and Pharma Indices are seen crawling in the improving quadrant and may outperform on a selective basis.

Though the Infrastructure, Realty, Financial Services and Services sector indices remain in the leading quadrant, they all are seen losing their relative momentum and heading lower. They may stay resilient, but gradually give up if prolonged weakness.

Bank Nifty, PSU Bank, PSE, CPSE, Auto, Metals, and Energy packs are seen steadily losing their relative momentum against the broader market. They are likely to continue to relatively underperform against the broader universe.

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