Interesting technical outlook: Dalal Street Week Ahead: Nifty looks set for technical pullback during truncated week

The previous week, the market had shown the first signs of fatigue as it finished on a negative note, with dark clouds forming over the candles. Over the past five days, the market has not only extended this correction, but has even tested and breached immediate important support levels. While remaining under relentless pressure, he showed no sign of technical retreat. On Friday, the overall index closed with a net loss of 443 points on a weekly basis.

In the coming week, however, there are chances of a technical setback. The following week is very truncated, with almost only three trading days. Thursday will only have a symbolic one hour session on Mahurat Trading while Friday will be a public holiday on behalf of Diwali-Balipratipada.

Nifty50 has tested the important 50-DMA level on the daily chart, which currently remains at 17,565. Options data also shows 17,500 holding a maximum of sell OI. However, on the upper side, 18,000 have a peak OI call concentration followed by 17,800 levels.

Volatility remained largely unchanged. India VIX only fell 0.68% to 17.42 on a weekly note. The coming week should see the 17,800 and 17,890 levels act as resistance levels. The supports are at 17,550 and 17,500.

The weekly RSI stands at 65.62. It slipped below 70 from the overbought zone, which is bearish. However, it remains neutral and shows no divergence from the price. The weekly MACD remains bullish and above the Signal line.

Meanwhile, on the candle chart, a large black candle emerged. This shows the directional consensus of market participants that prevailed throughout the week.

The Nifty has gained nearly 1,000 points from its lifetime record. However, even on days of decline, few pockets of the market, including larger markets, continued to show great resilience.

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Now, the markets are due to a certain technical retreat for two reasons. First, it saw a nearly vertical 1,000 point corrective movement from the 18,600 levels. Second, Friday’s session saw a large number of shorts added to the system. The nifty November futures added more than 3.31 lakh shares or 3.18% in net open interest. In this context, stay cautious about leveraged exposures, avoid shorts, and use the drawbacks, if any, to make modest purchases.

In our review of Relative Rotation Graphs®, we compared various sectors to the CNX500 (NIFTY 500 index), which accounts for over 95% of the free float market capitalization of all listed stocks.

Nifty snip 3AND CONTRIBUTORS

Nifty snip 4AND CONTRIBUTORS

Analysis of the Relative Rotation Charts (RRG) showed a possible end to the outperformance of the IT Index in the coming weeks as it slipped inside the weakening quadrant. The Nifty Midcap Index, which is also in the weakening quadrant, could continue to improve its relative momentum sharply against the broader markets. It could move to the main quadrant.

The energy, media, real estate, consumer, service sector and infrastructure indices are found inside the main quadrant. The PSE index also rolled into the main quadrant. All of these groups can relatively outperform larger markets.

Nifty Metal and Pharma Index, which are inside the lagging quadrant, may try to consolidate and improve their relative momentum with Nifty Commodities. The Auto, Financial Services, Bank Nifty and PSU Bank indices are in the improvement quadrant. These groups are also likely to be resilient in the face of larger markets.

Important note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 index (wider markets) and should not be used directly as signals to buy or sell.

(Milan Vaishnav, CMT, MSTA, is a consulting technical analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. He can be contacted at [email protected])


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