nifty weekly outlook: D-Street Week Ahead: Expect high volatility in holiday-truncated week

After taking support near the key levels on the charts, Nifty finally resumed its up move as it ended the weak on a decently positive note. The last three weeks had seen the index taking support at its 20-week MA. Finally, following the moves that it has seen over the past weeks, Nifty is now above all the key moving averages.

The past five sessions saw the index trading in a range of 572 points which was wider than what was seen over the past few weeks. While staying and closing above key supports, the headline index ended with a net gain of 391 points (+2.27%) on a weekly basis.

From a technical perspective, Nifty is now trading above all the key moving averages, however, it is yet to give a clean breakout on the weekly charts. If this happens, we may well be heading towards 18,000 levels again.

At the same time, the US markets, which have been a key source of global weakness, have also managed to defend the key supports. The S&P500 index, while continuing to show bullish divergences, has successfully defended the 200-week MA of 3,605 levels. As long as the SPX defends 200-DMA, we are unlikely to see any major drawdowns from the current levels.

At the most, we may consolidate at higher levels and trade with a defined trajectory. We have 16,950 as a major level to defend on a closing basis to avoid any major weakness.
Markets have a three-day short trading week. Monday will have just a symbolic Mahurat trading session and Wednesday is a trading holiday again. The coming week is likely to see levels of 17,650 and 17,930 acting as potential resistance points. The supports come in at 17,300 and 17,210 levels. The trading range may not get this wide as indicated by the technical support and resistance levels, but there may be some good amount of volatility to deal with during the week.

The weekly RSI is 56.28, it stays neutral and does not show any divergence against the price. The weekly MACD is bullish and trades above the signal line. A strong white-bodied candle has emerged. This reflects the directional bias of the market participants on the upside.

We will have some amount of volatility to deal with in the coming week due to practically two market holidays.

Monday, which has a mahurat trading session, is generally a symbolic one; no major decisive moves are usually seen. However, when the markets open on Thursday once again after a holiday on Wednesday, it will find itself adjusting to the global trade setup.

The US markets are stable. If this stability is sustained, we will find ourselves comfortably inching higher. Any consolidation in the US markets or a struggle to maintain stability will infuse some volatile moves in the domestic markets as well. On the domestic front, all we need to do is keep our heads above the 16,980-17,100 zone to avoid any weakness from creeping in.

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

The analysis of Relative Rotation Graphs (RRG) shows that there is no major change in the sectoral setup as compared to the previous week. The Nifty Midcap and Financial Services indices continued to give up on their relative momentum against the broader markets. Besides this, Nifty PSU Bank and Bank Nifty are also placed inside the leading and are expected to relatively outperform the broader markets despite some minor loss of momentum in the Bank Nifty.

Nifty Metals has rolled inside the leading quadrant. Along with the above groups, Metal index is also set to relatively outperform the broader markets.

Nifty Consumption and FMCG indices are inside the weakening quadrant. However, the FMCG index is seen sharply improving on its relative momentum against the broader Nifty500 index. Nifty Auto continues to slide further inside the weakening quadrant.

The Nifty Realty index continues to languish inside the lagging quadrant and it is likely to relatively underperform the broader Nifty500 pack. Nifty Energy is also placed inside the lagging quadrant. Nifty Pharma and Infrastructure indices are also inside the lagging quadrant but they are seen improving on their relative momentum.

The Nifty PSE index is inside the improving quadrant along with commodities, IT, and the media pack.

Important Note: RRGTM charts show 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 Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected].