From a technical perspective, the market formed an Inside Bar on the charts as Nifty formed a lower high and higher low. More importantly, Nifty defended the strong support zone of 18,850-18,900 levels. As of now, unless violated, this zone remains a very strong support zone for Nifty.
The concerning factor is the volatility as represented by India VIX. Throughout the week, it stayed choppy, but on a weekly note, it remained unchanged. The VIX closed at 10.88 with a change of just -0.21% on a weekly note. Any spikes here can once again leave the markets vulnerable to a violent selloff. However, as of now, the zone of 18,850-18,900 remains a crucial support. As long as Nifty stays above this, it will continue to be in a broad-trading range.
A buoyant start to the trade on Monday is on the cards. The levels of 19,400 and 19,580 are likely to act as potential resistance points. The supports are likely to come in at 19,000 and 18,780 levels.
The weekly RSI is 51.34; it remains neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below its signal line.
The pattern analysis shows a simple picture — Nifty gave up all the gains that it had achieved following a breakout above 18,850-18,900 levels. Following a full throwback, the index retested those levels and on expected lines, the said levels have acted as a strong support. Now, as long as Nifty stays above this crucial support zone of 18,850-18,900, it will stay in a broad trading range. Any violation of this support zone will invite weakness. On the upside, the 20-week MA which currently stands at 19,482, can be viewed as immediate resistance for the markets.
All in all, the coming week is likely to experience a positive start and we may see the technical pullback getting extended. However, the same is likely to find resistance at 20-week MA. However, as the market nears the probable resistance levels, the low VIX is likely to cause trouble again and this is something that one will need to watch.
We are likely to see the markets staying extremely stock-specific. This is likely to prevent any one sector or group from dominating the performance space. While investors can continue to ride the technical rebound, it is equally important that profits are protected at higher levels. A cautiously positive approach is advised for the day.
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.
Relative Rotation Graphs (RRG) indicate that Nifty Energy, IT, PSE, PSU Banks, and infrastructure indices are inside the leading quadrant. The realty index has also rolled inside the leading quadrant. These groups are collectively likely to outperform the broader markets.
The Nifty Midcap100 index has rolled inside the weakening quadrant. The pharma, auto, and metal indices are also inside the weakening quadrant.
Nifty Financial Service, FMCG, and Bank Nifty are inside the lagging quadrant. However, they appear to be improving on their relative momentum against the broader markets. The Nifty Services sector is inside the improving quadrant. Additionally, the Consumption index has also rolled inside the improving quadrant indicating a potential beginning of its phase of relative outperformance.
Important Note: RRG™ charts show the relative strength and momentum of 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.