D-Street week ahead: Largecaps to stabilise, broader market a worry
In our previous weekly note, we had expressed fear about the possibility of some technical damage if Nifty is not able to breach the 10,820-10,850 zone on the upside. After struggling throughout the week, the index gave up to this resistance area.
Even though Nifty ended on a strong note in the last trading day, it has still ended the week with a net loss of 107 points, or 0.99 per cent.
Though there is some minor structural damage on the daily charts, the weekly charts still show Nifty continues to face resistance in the falling trend line.
However, no breakdown is seen on this longer timeframe chart.
As we step into a new week from Monday, the Nifty still continue to remain in critical condition, just not out of the woods. On the daily charts, there is a clear breakdown of the large symmetrical triangle. On the longer term weekly charts, it continues to face resistance in the falling trend line drawn from the lifetime high.
The 10,830 and 10,945 levels will pose great resistance to the index next week, while supports should come in at 10,600 and 10,480 levels.
The weekly RSI stood at 56.5632. The RSI remains neutral and shows no divergence from price. The weekly MACD remains bullish even as it trades above the signal line. No significant formations were observed on the candles.
Pattern analysis shows Nifty continues to face resistance in the falling trendline that emerges from the high of 11,170 and joins the subsequent lower tops. This makes it evident that unless Nifty moves past the 10,800 mark, it will continue to face resistance in the falling trendline pattern.
Overall, while Fridays session saw a strong short covering-led rally, it would important to see if this means failure of the negative breakdown from the formation or it was just a dead cat bounce.
The coming week will remain equally crucial like the previous one. We recommend maintaining a cautious view on the market and restricting purchases to specific stocks and sectors. More relative stability is expected in largecaps and frontline stocks. Broader market performance might still be a concern.
A study of Relative Rotation Graphs shows the energy pack has entered the improving quadrant and is likely to spruce up its relative performance in the coming week. PSU banks have maintained their resilience against the broader market.
Bank Nifty and the financial services pack remain very much in the leading quadrant even as they continuing to improve on both relative strength and momentum. They are likely to lead the outperformance against the broader market along with the services sector. FMCG continues to lose momentum and strength along with CNX IT and this is likely to continue in the coming week. All broader market indices such as CNX100, 200 and 500 along with Nifty Jr. and the midcap universe have steadily continued to lose both relative momentum and strength.
Metals, infrastructure and media stocks are also not expected to put up any eye-catching show.
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 Nifty Index 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 firstname.lastname@example.org)