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Dalal Street Week Ahead: Nifty fall below 15,400 may spark more weakness

It was a week of consolidation for the Indian equities. While Nifty struggled to move past the key resistance levels, it continued to hold on to the key support points. The last five sessions kept the market largely in a broad but defined range.

The levels that had been violated by the market on their way down continued posing resistance on the way up. All through the past five sessions, the market refrained from displaying any definite directional bias. The headline index finally ended with a negligible gain of 53 points (+0.34%) on a weekly basis.

As we approach the coming week, there are a couple of levels on the daily and weekly charts that we will need to keep in mind. On a broader note, the zone of 15,670-15,700 was the support area for Nifty which it eventually violated. Now, on the way up, this very support zone is acting as the resistance and the index is struggling to keep its head above this level. As the main case scenario, unless Nifty can penetrate the 15,700 levels convincingly, runaway up moves will be difficult for the market.



Nifty is also facing resistance at short-term 20-DMA which presently stands at 15,827. On the support side, coming back to the weekly charts, Nifty has successfully held on to the 100-week MA which presently stands at 15,404. It would be crucially important for Nifty to stay above this 100-week MA on a closing basis.

The coming week is likely to see the levels of 16,000 and 16,350 acting as resistance points. The supports come in at 15,400 and 15,150. The trading range is likely to get wider than usual over the coming weeks.

Agencies


The weekly RSI is 41.11 and stays neutral. It does not show any divergence against the price. The weekly MACD is bearish and stays below the signal line. A candle with a slightly long lower shadow has appeared. Apart from this, no other formations were noticed on the charts.

The pattern analysis of the weekly chart shows one of the most crucial inputs that can decide the trajectory of the markets in the coming days — the behaviour of Nifty vis-à-vis the 100-Week MA which stands at 15,404. This makes the level of 15,400 a crucial support for the Nifty on a closing basis. If this level is violated, it can infuse some incremental weakness in the markets again.

The options data as of today shows upside staying capped at 16,000 levels as this strike has seen the highest built-up of Call OI. This also coincides with the levels of resistance derived through classical technical techniques.

The overall technical structure suggests that we will not see a definite defensive or a risk-on approach from the markets. We are likely to see a mixed set of sectors performing; defensives like IT, FMCG, and consumption may do better. At the same time, we might also see the economy facing and high-beta pockets like auto, banks, and financial services doing well on a selective basis.

It is recommended that so long as the Nifty is staying above 15,400, aggressive shorts must be avoided. All dips, until then, must be used to make quality selective purchases. A cautiously positive approach is advised for 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.

Nifty snip 2aAgencies

Nifty snip 2bAgencies

The analysis of Relative Rotation Graphs (RRG) does not show any major change in the sectoral setup as compared to the previous week. Nifty Bank, Auto, FMCG, and Consumption indices continue to stay placed inside the leading

. These sectors are likely to relatively outperform the broader Nifty500 index. Nifty Infrastructure is also inside the leading quadrant; it continues to pare its relative momentum against the broader markets.

Nifty Pharma, Energy, and PSE indices are inside the weakening quadrant. Stock-specific action cannot be ruled out, but overall these sectors may show some inclination to take a breather.

Nifty Commodities has rolled inside the lagging quadrant. Nifty Metal continues to languish inside the lagging quadrant. It is likely to continue relatively underperform the broader markets. Besides this, PSU Bank, Realty, and Media indices continue to remain inside the lagging quadrant. Nifty IT and Services sectors are inside the lagging quadrant but these groups are seen trying to improve their relative momentum against the broader markets.

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.

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