By Milan Vaishnav, CMT, MSTA
After staying heavily spooked by rising bond yields and strengthening US dollar as its consequence, the Indian equity markets remained weak throughout the week barring the last day where it saw some technical rebound from the short-term oversold levels. Though the Index still away from violating the key levels on the higher time-frame charts, it has ended up violating few important levels on the daily chart. After suffering a negative close on four out of the past five days of the week, the headline index showed a 400-point rebound from the lows of the previous session and ended with a net loss of 286.95 points (-1.91%) on a weekly note.
The 10-Yr US Bond yields which have now moved past 1.70 will continue to haunt the equity markets over the coming days. The Indian markets in particular, which had got oversold on short-term charts saw a strong technical rebound on the last trading day of the week. This technical rebound may well get extended as we enter the expiry week of the current derivative series. This being said, even if we look at the domestic charts in isolation, it clearly shows that the NIFTY has slipped into a broad-ranged consolidation; it has also dragged its supports much lower near 15,000-15,100 levels for the near term.
Another relation that stays disturbed is the usually inverse relation that the Volatility Index, INDIAVIX, shares with NIFTY. Along with the markets, the INDIAVIX has also come off by another 7.92% to 19.99. In the week before this one, the INDIAVIX had come off by 15.07%. This inverse relation may get corrected; we may see the Index extending the technical pullback to a limited extent and can also expect volatility to increase over the coming days.
Support placed at 14,500 for Nifty
The coming week will see the levels of 14,865 and 15,000 acting as resistance points. The supports come in lower at 14,500 and 14,380 levels.
The pattern analysis indicates that NIFTY has been trapped in a broad-ranged consolidation. Although it tested and violated a few key levels on the Daily charts, it is still 730-odd points away from the faster 20-Week MA which presently stands at 14,010 and tracks the rising trend line seen on the chart. The Bollinger bands, which had got wider than usual are seen beginning to contract; this indicates that the NIFTY may well stay in a broad range for a while and many not show any runaway up move.
What these pockets for opportunities
The defensive play has got quite evident in the markets. Select Auto stocks are seeing some relative strength but apart from that, the Energy, FMCG, Consumption and very select pharma stocks have started to show improvement in the relative performance. This trend is likely to work out in the coming week as well. The NIFTY may well see the technical rebound getting extended, but it is likely to say limited in its extent. We recommend avoiding shorts, staying highly stock-specific and keeping exposures at modest levels throughout the coming week.
BankNIFTY relatively underperformed the NIFTY in the previous week. While the front-line Index declined 286.95 points (-1.91%) on a weekly note, the BankNIFTY came off by 1335.05 points (-3.76%) on a weekly note.
The coming week is expected to see the BankNIFTY continuing to relatively underperform both NIFTY and the broader NIFTY500 Index. The Bank NIFTY has slipped inside the weakening quadrant on the weekly RRG; it is seen paring its relative momentum against the broader markets.
The movement during the coming week is likely to stay capped with 34,650 and 35,105 acting as potential resistance points; supports come in at 33,650 and 33,220 levels.
The weekly RSI is 63.87; it stays neutral and does not show any divergence against the price. The RSI has also shown a bearish failure swing; it went above 70, slipped below it. It rose again but could not take out its previous high and slipped again below the point where it had bounced. This has resulted in a mildly bearish failure swing on the RSI. The weekly MACD is bullish; however, the sharply narrowing slope of the histogram points at a likely negative crossover over the coming weeks.
BankNIFTY has taken out a triple top resistance near 32,000 levels; after testing the high point at 37,708; it has marked a potential near-term top for itself at this point. It is unlikely that a runaway rise is seen in this index.
(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. The views expressed are the author’s own. Please consult your financial advisor before investing.)
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