In out last weekly note, we had mentioned that the only trouble for an otherwise buoyant Nifty could be that it is now overextended on the daily chart. The week that went by saw the market consolidate at higher levels. In the global landscape, signals of taper tantrums from the US Fed caused some volatile reactions in the global markets, but the Indian market remained very much resilient and Nifty protected the key levels as it consolidated in a defined range.

In the two-day correction, Nifty has ended with a net loss of 78.60 points (-0.48%) on a weekly basis. At the beginning of the week, the 50-pack had turned overbought on the daily charts; and the PCR across all expiries had reached close to 1.80 level. The over-extended nature of an otherwise buoyant market needed one healthy correction, and we saw that happen in the second half of the previous week.

Given the strength of the US

Index, metal stocks took a hit. However, the key sectors and stocks that were expected to play a catchup continued to remain laggards. The volatility increased; INDIA VIX, rose 7.89% to 14.02 on a weekly note. In the coming days, it would be crucial for Nifty to defend the 16,300-16,450 zone to avoid any major corrective move.

Nifty will see the 16,600 and 16,730 levels play out as likely resistance in the coming week while supports will come in at 16,350 and 16,220 levels. The weekly RSI stood at 70.29 level. It remains in the mildly overbought zone. The RSI, however, remains neutral and does not show any divergence against the price. The weekly MACD is bullish and stays above the Signal Line.


The weekly RSI stood at 72.11; it has marked a new 14-period high, which is a bullish sign. The RSI is mildly overbought. However, it remains neutral and does not show any divergence against the price. The weekly MACD is bullish and remains above the Signal Line. A strong White Body emerged on the candles. It shows directional consensus among the market participants. A Spinning Top occurred on the candles.
Pattern analysis showed the breakout that occurred on the daily charts above the 15,900-15,950 levels remains valid and very much in action. Weekly charts show the index has continued with its bounce following eight weeks of sideways consolidation. They remain above the pattern support trend line drawn from the lows formed in March 2020.

The US Dollar Index has resumed its upward move after some ranged consolidation. The strengthening of the US Dollar Index is a negative for commodity prices. We would recommend using any bounce in the metal stocks in the coming week to book profit and take the money off the table. The defensive sectors like FMCG, Consumption and IT are likely to show resilience. It is also expected that Bank Nifty, which has been a laggard, may attempt to correct its relative underperformance. In any case, it is suggested to avoid shorts, make purchases selectively and protect profits vigilantly at higher levels.


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

The analysis of Relative Rotation Graphs (RRG) showed despite lackluster performance, the Realty Index remains inside the leading quadrant, though it appears to be slightly paring its relative momentum and consolidating like the small cap index. The Nifty IT Index remains in the leading quadrant; it appears to be firmly maintaining is relative momentum against the broader Nifty500 index. This group is set to relatively outperform the benchmark. Nifty Metals, Pharma, and PSE Indices are inside the weakening quadrant along with Commodities and the Midcaps.


The PSU Bank Index has rolled inside the lagging quadrant and so has the Media Index. Nifty Bank, Auto, and the Energy Indices also remain inside the lagging quadrant. Nifty Services Sector index is inside the improving quadrant along with the Nifty FMCG and the Consumption Indices. These groups are likely to put up a resilient performance against the broader market.

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 milan.vaishnav@equityresearch.asia)


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