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    Dalal Street week ahead: Signs of fatigue all over; Nifty may see some consolidation

    Synopsis

    Use all future up-moves more to protect profits and less for new purchases.

    ET CONTRIBUTORS
    The domestic equity market ended with gains for the fourth week in a row, as Nifty extended its up-move. However, unlike the previous week, the trading range narrowed considerably, and the momentum appeared to be losing its strength as well. Compared with a 400-point trading range seen in the week before, Nifty this time oscillated in a much narrower 171-point range. After moving in this contracted trading range, the headline index managed to end the week with a net gain of 160.70 points, or 1.51 per cent.

    Although the index has managed to push itself higher in a risk-on environment fuelled by a massive liquidity gush, the market in general appear to be losing momentum and showed signs of fatigue at current level. Volatility index INDIA VIX declined 3.20 per cent to 24.94, even as it stayed at one of its lowest levels of the recent times.

    Nifty has managed to move past its 200-week moving average, which currently stands at 10,395. It is showing enough signs that the current rally may take some breather and the market will consolidate at current levels.

    The week is expected to see a tentative start to the new week with 10,904 and 11,000 levels acting as stiff resistance, while supports will come in much lower at 10,635 and 10,570 levels. The weekly RSI stands at 55.75. It has marked a fresh 14-period high, which is a bullish indication.

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    However, the RSI does not show any divergence and remains neutral against the price. The weekly MACD remains bullish, as it trades above the signal line. A Spinning Top emerged on the candles, showing diminishing momentum and lack of consensus among the market participants. As the Spinning Top emerged amid a strong rally, it has the potential to stall the ongoing trend, at least temporarily.

    Pattern analysis showed Nifty has managed to move past the 200-WMA and stay above that level on a closing basis. However, the 50-week moving average has crossed the 100-week moving average from above, indicating the likely onset of some intermediate weakness. The 50-week MA stood at 10,904, while the 100-week MA now stands at 11,037.

    Overall, the market is showing clear signs of fatigue and it would be no surprise if Nifty sees some consolidation or measured corrective activity in the coming days. If Nifty makes a relentless up-move, the risk-reward ratio will become even more unfavourable for retail investors and traders, who are chasing the upside momentum. We emphasize the need to protect profits at higher levels and recommend using all future up-moves more to protect profits and less for make new purchases. A defensive and stock-specific approach is advised for the coming week.

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

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    A review of the Relative Rotation Graphs (RRG) shows nothing much has changed on sectoral placements on the charts. With the market trading in a narrow range, these sectors too have moved, but very little, on their expected trajectory. Auto is the only sector in the leading quadrant, which looks comfortably placed. This group is set to relatively outperform the broader Nifty500 Index.

    Infrastructure, Energy, and Commodities groups are also placed in the leading quadrant. However, they appear to be drifting lower while giving up on their relative momentum. They are rotating and moving towards the weakening quadrant. However, some stock-specific outperformance among these groups cannot be ruled out.

    FMCG, Consumption and IT Indices are in the weakening quadrant; they continue to negatively rotate in the south-west direction and appear to be moving towards the lagging quadrant. These groups have topped out and are set to relatively underperform the broader market.

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    Bank Nifty has advanced in the improving quadrant. Hopefully, the period of underperformance has ended for the immediate short term. The index is likely to stay resilient going ahead on a relative basis. Nifty Services index stays in the lagging quadrant, but is improving sharply on its relative momentum. The realty and PSU bank indices are placed comfortably in the improving quadrant along with Media and Metal groups.

    Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they are showing relative outperformance against Nifty500 Index (Broader Markets) and should not be used directly as buy or sell signals.

    (Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)



    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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