As we head into the last five trading sessions of the year, it is important to note that Nifty is still below the 20-week MA which presently stands at 17,443. Further, the weekly options data suggest that the 17,000 level continues to hold the highest Put OI, meaning the index has support at these levels for now.
It would be crucial for Nifty to keep its head above this point to avoid any weakness from creeping in again. The most immediate resistance has been dragged lower to 17,500 levels while the zone of 17,150-17,440 has multiple resistance points that the index may have to deal with on daily and weekly timeframe charts.
The volatility cooled down a bit as India VIX came off by 1.16% to 16.15. The coming week is likely to largely remain rangebound with overall volumes staying modest, given the holiday season.
Nifty is likely to find resistance at 17,250 and 17,400 levels. The supports are likely to come in at 16,850 and 16,700 levels. Just like the previous two weeks, the trading range over the coming week is also likely to stay wider than usual.
The weekly RSI is at 51.09, showing a mild bullish divergence against the price. The weekly MACD is bearish and stays below the signal line.
On daily charts, a bullish hammer pattern emerged. The candle has a “long lower shadow” and is not a classical hammer. Occurrence of such candles after a decline and near the support hints at a potential reversal. However, this needs further confirmation.
In the previous weekly technical note, it was mentioned that moving past the 17,000-17,200 zone will be crucial for Nifty. This holds true for the coming week as well.
Moving past this zone will ensure Nifty ends its corrective spell and enters the broad consolidation zone once again. As long as it is below this zone, it theoretically stays vulnerable to profit-taking bouts. Traditionally defensive sectors like consumption, pharma and IT would relatively perform better over the coming days. It is recommended to keep purchases modest and limited to relatively stronger pockets over the coming week.
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 Nifty PSU bank, auto, energy, media, and the infrastructure indices are inside the leading quadrant. However, they appear to be slowing down on their relative momentum. These packs may continue to outperform the broader Nifty500 Index. Nifty PSE and realty indices continue to slide while staying within the weakening quadrant.
The IT index is showing strong rotation towards the leading quadrant while being placed inside the weakening quadrant. This reflects a sharp improvement of relative momentum in the IT Index against the broader markets.
Nifty Pharma rolls inside the improving quadrant and this marks a potential end to the relative underperformance of this sector. Nifty Metal is inside the lagging quadrant but it appears to be on the verge of rolling over to the improving quadrant. Nifty Consumption, FMCG and Services along with commodities indices are inside the lagging quadrant.
Nifty Bank is inside the improving quadrant. The relative momentum here looks to be levelling off. The market is likely to see selective and isolated outperformance from these pockets.
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 firstname.lastname@example.org