Dalal Street Week Ahead: Which sectors may perform now & which ones may lag

Nifty stayed within this range this past week and consolidated, and continued to exhibit strong inherent strength before ending at a yet another lifetime high point on a closing basis. Following the move in a 360-point range, Nifty ended at a new closing high and also very near to the lifetime high point.

The headline index ended with net weekly gains of 363.15 points, or 2.07 per cent. From a technical perspective, an analysis of the patterns and F&O data suggests Nifty is sitting on the cusp of a fresh breakout. There are good chances that we will see Nifty move past its previous high point.

The coming week is going to be a truncated one, with Friday, October 15, being a trading holiday on account of Dussehra. The previous week’s low point of 17,452 remains a crucial support to watch out for. If this level stands defended, we will see the market attempt new highs in the coming week.

Volatility declined significantly; India VIX came off 9.05 per cent to 15.65 level. Unless there are any major negative cues to deal with, the new week should begin on a positive note. Nifty may face resistance at the 17,950 and 18,335 levels, while support should come in at the 17,700 and 17,610 levels.

The weekly RSI stood at the 76.03 level. It is mildly overbought. However, it remains neutral and does not show any divergence against the price. The weekly MACD remains bullish and above the Signal Line.

On the candle chart, a white body has emerged. This reflects the directional consensus of market participants on the upside. Moreover, an ‘Inside Bar’ has also emerged. Inside Bars occur when the current or the latest bar has a lower top and higher bottom, and it is contained within the previous bar.

Now, if Nifty manages to move past the high of the previous bar, i.e., 17,943, it will mean a fresh ‘buy’ signal for the index in the near term. However, all these should not be anticipated, and confirmation must be awaited.

While Bank Nifty underperformed during the week, PSU banks have started to put up a good show and demonstrate a significant improvement in their relative strength against the broader market. So, banking along with select IT, auto, PSE stocks and the broader space are likely to show relative outperformance in the coming week. Traders should avoid shorts even if Nifty consolidates again.

Against that backdrop, stock-specific buying should be made at each available opportunity, while also keeping exposures at modest levels. The overall outlook remains largely positive for the truncated week, ahead.

In our look at the Relative Rotation Graphs®, we compared various sectoral indices against CNX500 (Nifty500 Index), which represents over 95% of the free float market cap of all the listed stocks.

An analysis of last week’s Relative Rotation Graphs (RRG) showed a lot of inherent strength in the market. The week gone by saw the market trade much on the expected lines. The Realty and IT Indices remain in the leading quadrant along with the Services sector index. The Consumption Index has also rolled inside the leading quadrant. These groups are likely to relatively outperform the broader market.

The Midcap Index is inside the weakening quadrant. It is showing an improvement in relative momentum. Nifty Metal Index remains inside the weakening quadrant while paring its internal strength against the broader market.

Nifty Commodities Index has rolled inside the lagging quadrant along with the Pharma Index. These two are languishing along with the Metal index, which is inside the weakening quadrant.

The PSU Bank Index, PSE Index and the Auto Index are inside the lagging quadrant. However, they appear to be sharply improving their relative momentum.

Nifty Media Index has rolled inside the improving quadrant. Apart from that, Nifty Financial Services, Energy, Nifty Bank, Infrastructure, Energy and the FMCG indices are inside the improving quadrant and may well continue to improve their relative performance against the broader market.

Important Note: The 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 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])