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    Dalal Street week ahead: Nifty momentum weakening; don’t chase this market blindly


    Pattern analysis showed Nifty has managed to move past the 200-DMA.

    Nifty is likely to see probable resistance at 10,645 and 10,775 levels in the week ahead, while supports will come in much lower at 10,465 and 10,330 levels.
    Nifty continued to surge for the third week in a row as it extended the gains. In our previous weekly note, we had mentioned the possibilities of a mild extension of the up-move. During the week gone by, Nifty oscillated in a slightly expanded range. The trading range remained within around 400 odd points and in the process, the index moved past some key levels. After the moves that remained in a defined and measured range, the headline index ended with net gains of 22.35 points, or 2.16 per cent.

    Despite an evident disconnect with the macro-economic landscape, equity markets around the globe are being fuelled by the gush of liquidity and this has resulted in a giant short squeeze in a risk-on setup. Volatility continued its consistent decline; with volatility index, INDIA VIX, declining another 10.33 per cent to 25.77. The previous week had seen INDIA VIX come off over 4 per cent. As of today, Nifty rests at a point, which is the confluence area of one of its two strong pattern resistance points.
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    With the US market shut on Friday, the start of the week will be devoid of any global cues. Nifty is likely to see probable resistance at 10,645 and 10,775 levels in the week ahead, while supports will come in much lower at 10,465 and 10,330 levels. In the event of any corrective activity or retracement, the range on the lower side is expected to get wider. The weekly RSI stood at 54.06. It has marked a fresh 14-period high, which is a bullish signal. The RSI, however, continues to remain neutral and does not show any divergence against price. The daily MACD remains bullish, as it trades above the signal line. A white body has emerged on the candles. Apart from tis, no other significant formations were observed.

    Pattern analysis showed Nifty has managed to move past the 200-DMA, which currently stands at 10,386. The index has also crawled above the decade-old rising trend line, which it had violated on its way down. This zone may act as a temporary support in the event of any retracement or any corrective move. All and all, the market is continuing to mark an extended up-move, and in the event of this happening over the coming week, we recommend not chasing the up-moves blindly. On the short-term daily charts, Nifty is at the confluence of two resistance points and is showing signs of diminishing momentum. However, the liquidity-driven mark is making the downside extremely resilient. In the current technical setup, we strongly recommend avoiding any major exposure and adopting a highly selective and stock-specific approach.

    In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty 500 Index), which represents over 95 per cent of the free-float market-cap of all the listed stocks.
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    Screen Shot 2020-07-04 at 2.59.14 PM
    A review of the Relative Rotation Graphs (RRG) showed different sectors have continued to advance and rotate on the expected lines without any deviation from their respective trajectories. The auto index has crawled in the leading quadrant, advancing from the improving quadrant. This is now set to relatively outperform the broader Nifty500 Index. Along with auto, infrastructure, energy and commodity groups are also in the leading quadrant, but they appear to be faltering on their relative momentum.
    The Pharma index has slipped further in the weakening quadrant, and it appears to be rotating in a south-west trajectory. This index will now visibly start underperforming the broader market. Along with pharma, FMCG, consumption and IT are also rotating on similar lines in the weakening quadrant.

    The financial stocks are making strong rotation on the upside. While the PSU bank index has been making strong moves inside the improving quadrant. Bank Nifty and the Financial Services index are making a near-vertical improvement in their relative momentum and moving to enter the improving quadrant. These groups will have stock-specific outperformance against the broader market and any major shorts should be avoided in these areas. The realty index is seen making a similar rotation towards the improving quadrant.

    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 basket) 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

    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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    5 Comments on this Story

    Binu Pillai40 days ago
    There are still few Good shares ignored by the market men.. one such is PRECISION CAMSHAFT, the company is not only manufacturing Cars Engine Camshafts but also into other precision components and Electric Vehicles parts.. It posted good results in Q4 beating Covid impact. .. You may analyse and take a decision.
    ANAND AGRAWAL40 days ago
    Right from the start of the current rally at 8000 level, the writer is continuously writing articles here that market is going to fall. Reading his columns we stayed away from the markets and missed the whole rally. Would like to know if the writer himself is short on the market since the rally started or he is simply writing columns and himself making money by going long on the market.
    May 41 days ago
    When analyst says, because of US Friday holiday, the Indian market on Monday will directionless makes a negative event for Indian market. Indian market is disabled by many many many factors, all are negative events. Indian economy is not so well but market don't reflect it. Indian market is irrational.
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