WEEKLY MARKET OUTLOOK FOR JANUARY 30 THRU FEBRUARY 03,
2017
The overbought NIFTY50
continued to post gains for the fourth day in a row as it ended the Week on a
robust note by posting gains of 290.90 points or 3.50% on week-on-week basis.
The ending of the previous week has thrown up extremely divergent signals on the
Daily and Weekly Charts. We expect a modest opening to the Markets on Monday.
Not only the NIFTY50 trades overbought on the Daily Charts and faces pressure
from external technical factors like potential rise of US Dollar Index and
spike in US Bond Yields, it has thrown up extremely bouyant signals on the Weekly
Charts. On the top of it, we face one of the most important event – Union
Budget – that comes up on February 01. This has made one thing very obvious
that volatility will rule the roost and in all probability we will witness
swings on either side dominated by profit taking activities.
For the coming week, 8690 and
8785 will act as resistance levels while supports will come in at 8610 and 8520
levels.
The Relative Strength Index –
RSI on the Weekly Chart is 59.0386 and it has reached its highest value in last
14-days which is Bullish. It does not show any bullish or bearish divergence.
The Weekly MACD has reported a positive crossover and this now trades above its
signal line and is Bullish. On the Candles, an engulfing bullish line
has occurred. This formation has occurred during an up move and therefore, this
has potential to halt the current up move and force the Markets into some
correction or consolidation.
While having a look at
pattern analysis, this shows quite divergent views as well. The usual visual inspection of the Weekly Charts
suggest all likelihood of the NIFTY progressing towards 8800-mark. On the other
hand, the engulfing pattern on the Candles show probability of the up move
being interrupted in the immediate short term. Though the lead indicators on
the Weekly Charts have shown positive crossovers and upward inclination, the
NIFTY trades very much overbought on the Daily Charts which will not allow any
unaway rise in the Markets.
Overall, given the divergent
readings on the Daily and Weekly Charts, we now strongly advise to raise the
levels of caution. The Union Budget which falls withing this week will infuse
great amount of volatility and the profit taking bouts on higher levels now
remain imminent. We many not see any major correction but the volatility will
remain and that too in a wider range. We strongly reiterate to remain light and
refrain from creating any major exposure and continue to use all the up moves
in protecting profits at higher levels.
A study of Relative Rotation Graphs – RRG continue to
suggest that IT Sector is likely to relatively outperform the NIFTY. Though
some churning of individual components will be seen and some paring of momentum
is likely in IT, relative outperformance is expected to continue. The FMCG and
INFRA stocks are likely to show continued momentum and selective relative
outperformance will be see. We will also see select REALTY stocks attempting to
consolidate and improve their performance. Metals and Banks may also show
slowing of momentum and select components from MEDIA and broader Indices are
likely to under-perform. We can also expect some relative underperformance from
PHARMA as well.
Important Note: RRG™ charts show you the relative strength and
momentum for a group of stocks. In the above Chart, they show relative
performance as against NIFTY Index and should not be used directly as buy or
sell signals.
(Milan Vaishnav, CMT, is
Consultant Technical Analyst at Gemstone Equity Research & Advisory
Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)
Milan Vaishnav, CMT
Technical Analyst
(Research Analyst, SEBI Reg.
No. INH000003341)
Member:
Market Technicians Association, (MTA), USA
Canadian Society of Technical Analysts, (CSTA), CANADA
+91-98250-16331
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