The NIFTY ended the previous week with a modest gain of
40.20 points or 0.50% thanks to the decent sustained recovers that we saw in
the Friday’s session. The Markets are indicating continuance of technical
pullback on week-on-week bases which began in the previous session. The bias
remains towards continuation of pullback but with some caveats. The NIFTY still
rules below 200-DMA on Daily Charts, outside the lower band of Bollinger Band
on the Weekly Charts and also below some critical resistance levels on the Weekly
Charts. However, due to all this some consolidation in a broad range cannot be ruled out but overall
the NIFTY is likely to show resilience to any serious downsides in coming week and
this keeps the bias positive.
For coming Week, the levels of 8168 and 8245 will remain immediate
resistance levels to watch out for. The supports will exist at 7916 7850
levels.
The RSI—Relative Strength Index on the Weekly Chart is 40.8659 and
this remains neutral as it shows no bullish or bearish divergence or any
failure swings. The Weekly MACD still continues to remain bearish as it trades
below its signal line. On Candles, a Hammer occurred. Hammers must appear
after a significant decline or when prices are oversold (which appears to be
the case with * NIFTY 50) to be valid.
When this occurs, it usually indicates the formation of a support level
and is thus considered a bullish pattern. This pattern is similar to Hanging
Man pattern but since occurred during a downtrend, it is called a Bullish
Hammer. Such pattern also has a long lower shadow.
On the derivative front, the NIFTY has began the
December series while shedding over 8.67 lakh shares or 5.78% in Open Interest.
This signifies heavy short covering in Friday’s session. It would be critical
to see if see this being replaced with fresh longs and purchases.
Coming to pattern analysis, the NIFTY have retraced
nearly 900-odd points after it formed a Double Top formation near 8968 levels
and resisted to it. This week, after the retracement of nearly 900-odd points,
it has shown a mild uptick and some indication that a potential bottom has been
formed near 7916-7950 zones. Currently it trades outside the lower band of the
Bollinger Band and with RSI still ruling comfortably above 30, it would be
critical for the NIFTY to crawl back inside the band to avoid any fresh
weakness from creeping in. Further, the zones of 8140-8165 will be critical to
watch out for. NIFTY will have to move past these zones and trade above this to
remain afloat and try and confirm the potential bottom formation.
Overall, in coming week, though we maintain a positive
bias towards pullback, we do not rule out consolidation happing at higher
levels. This will induce volatility in the sessions and also see some intermittent
selling bouts from higher levels. With the current lows of 7916 acting as base,
we will see the NIFTY oscillating in a broad range while maintaining positive
bias. We will see sector rotation also taking pace and will see quality stocks distinctively
out-performing the general Markets. We maintain our view of refraining from
shorts and use all intermittent downsides to accumulate select stocks.
A study of Relative Rotation Graphs – RRG suggest that IT
stocks will continue to improve their performance. During last two Weekly
readings we had mentioned that IT Stocks will show resilience, form base and
improve. This precisely has happened.
This coming week as well, we will continue to see IT and PHARMA stocks continuing
to improve their relative performance. Also, PSU Banks, ENERGY, CNX MID50 and
METAL will out-perform NIFTY on relative basis. Some continued weakening will
be observed in NIFTYJR, BANKNIFTY, FINANIALS, and AUTO which are expected to
struggle to find feet. Some improvement in INFRA stocks can also be expected in
coming week.
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
Association of Technical Market Analysts, (ATMA), INDIA
http://milan-vaishnav.blogspot.com
+91-98250-16331
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