Key to navigate market volatility is to have steadfast focus on relatively stronger pockets

In the previous weekly note, it was mentioned that Nifty has tested a double bottom support. This support has held itself throughout the volatile week.

The markets saw a 690-point trading range, which remained quite similar like the week before this one. Finally, after a strong short covering led rally on the last trading day, Nifty ended with net gains of 484 points (+3.07%) on a weekly basis.

Despite strong gaps on the up or the downside, the volatility remained largely unchanged on a weekly basis. It just came off by 1.64 per cent to 23.10. More importantly, from a technical perspective, Nifty has successfully defended the double bottom support zone of 15,500-15,750 area.

So long as it is above this zone, there will be higher chances of Nifty stabilising and finding a foot for itself. In other words, a violation of this zone will invite incremental weakness. To translate this in simpler terms, Nifty’s price action against 15000-15700 zone would be crucial to watch over the coming weeks.

This week will also have expiry of the current derivative series; the sessions may stay dominated with rollover-centric activities. While a stable and positive start to the week is expected, the levels of 16,480 and 16,670 will act as resistance points. The supports are expected to come in at 16,000 and 15,910 levels. The trading range will continue staying wider than usual.

The weekly RSI is 42.82; it is neutral and does not show any divergence against the price. The weekly MACD is bearish and stays below the signal line. A white bodied candle emerged. Apart from this, no other formations were noticed on the charts.

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The pattern analysis of the weekly chart shows that Nifty has so far respected the classical double bottom support. This support exists in the range of 15,500-15,750 levels.

For the markets to find some foot and stability, keep its head above the mentioned zone will be critically important for the markets.

All in all, the key to navigate the volatile markets to have a steadfast focus on the relatively stronger pockets. We will see sectors like consumption, realty, PSE, and other such groups showing resilience in times of weakness and relative outperformance during the moves on the higher side.

However, the markets are yet to confirm its potential bottom. It would be wise to keep leveraged exposures at modest levels and maintain a highly stock-specific and selective approach towards the markets.

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.

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The analysis of Relative Rotation Graphs (RRG) shows that the Consumption, FMCG, Pharma, Infrastructure and the PSE indexes are likely to relatively outperform the broader markets as they reside in the leading quadrant. The Metal, Energy, and Commodity groups are also inside the leading , but they are likely to see a highly stock-specific outperformance.

The PSU Bank index continues to languish inside the weakening quadrant. The Media index is also inside the weakening quadrant, but it is seen sharply improving on its relative momentum front and moving towards entering the leading quadrant.

The Nifty IT index and the Services sector index are inside the lagging quadrant; they are expected to relatively underperform the broader NIFTY500 index. The Realty and the Auto indexes are also inside the leading quadrant, but they are sharply consolidating their relative performance while improving on their momentum along with Nifty bank.

The Midcap 100 index is inside the improving quadrant; it is likely to consolidate its performance for the better.

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.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based at Vadodara. He can be reached at [email protected])