Dalal Street Week Ahead: 18,100 key for Nifty’s upmove; stick to low-beta stocks

It was the second week in a row that the market did not make any major headway. It stayed directionless and ended with modest gains. The last few sessions have seen the volatility ebbing. The VIX remains at one of its lowest levels in the recent past. The trading range also remained modest, with Nifty oscillating in a range of 415 points. While continuing to resist the important levels, Nifty ended with a modest gain of 87.70 points (+0.49%) on a weekly basis.

The 20-week MA, which presently stands at 17,981, has assumed some importance on the weekly charts over the past many weeks. While Nifty was trading higher, it took support on this level for five weeks in a row. After the index violated and slipped below this support, Nifty was seen resisting the 20-Week MA for the third week in a row.

On the daily chart, Nifty has closed just a notch below the crucial 100-DMA which is placed at 17,967. With 50-DMA placed at 18,033, Nifty has multiple resistances to navigate between 17,950-18,050 levels on both daily and weekly charts. In other words, some meaningful up move shall happen only after Nifty moves past 18,000–18,100 levels convincingly.

India VIX, the volatility barometer, has been trading near its lowest levels of recent times. This remains a cause of concern in the near term.

The market may see a quiet start to the week. The levels of 18,100 and 18,250 are likely to act as potential resistance points. The supports come in at 17,900 and 17,780 levels.

The weekly RSI is at 52.99 and remains neutral. It does not show any divergence against the price. The weekly MACD is bearish and trades below the signal line.

The pattern analysis shows that the Nifty experienced a failed breakout when it was unable to significantly move past the previous high point of 18,600. It just made an incremental high, saw a corrective move, and slipped below the breakout point, resulting in a failed breakout. Currently, it is seen resisting multiple points on the daily and weekly charts that are in close proximity to each other. The overall pattern analysis shows that a meaningful up move shall happen only after Nifty moves past 18,100 levels convincingly and stays above that point. Until this happens, we are likely to see all up moves facing stiff resistance at higher levels.

All other technical factors aside, the low level of VIX is a cause of concern for the near term. The persistently low levels of VIX indicate a period of low volatility and it denotes complacency of the market participants. This is supposed to be taken with a tinge of caution. Any spike in VIX, which is absolutely normal if this indicator remains low for a long time, can be harmful to the market.

Unless the index moves past 18,100 levels, the market shall not see any runaway up move. The overall approach to the market needs to be stock-specific and selective over the coming days. We will see defensive and low-beta stocks doing better. We are also likely to see isolated outperformance from the banking, IT, financial, and auto sectors.

The coming week is expected to wear a defensive look. It is likely that pockets like FMCG, Pharma, IT, PSE, etc. may do well. While select outperformance from other sectors cannot be ruled out, it would be wise to stay invested in low-beta stocks that tend to show much lower volatility.

Moreover, unless the key resistance points are taken out, leveraged exposures must be kept at modest levels. A cautiously positive outlook 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.

The analysis of Relative Rotation Graphs (RRG) shows that the auto sector index has also rolled inside the leading quadrant. This joins the Nifty IT and the FMCG index which are firmly placed inside the leading quadrant. These groups are set to relatively outperform the broader Nifty 500 Index. The Nifty PSE Index is also inside the leading quadrant.

On the other hand, Nifty Infrastructure index has rolled inside the weakening quadrant. Besides this, Nifty Commodities, Financial Services, Services Sector, Nifty Bank, Metal, and the PSU Bank indices are also inside the weakening quadrant. Nifty Realty, Media, and the Energy indices are seen continuing to languish inside the lagging quadrant. Nifty Consumption sector index is also inside the lagging quadrant, however, it is seen sharply improving on its relative momentum against the broader market.

The Nifty Pharma index is inside the improving quadrant; this may continue to see resilient performance against the broader market in the coming week.

Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against Nifty500 Index (Broader market) 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]