There was a strong rally last week, clearly fueled by short-covering. And this week was no different.

Even though the markets were fluctuating in a narrower range of 789 points (vs 1,000+ points last week), that was still wider than usual. Nifty had a strong upward trend throughout the four-day short trading week. Only short-covering fueled this rally. The headline index ended with a strong gain of 656 points (+3.95%) on a weekly basis.

The market also reacted positively to the Federal Reserve’s rate hike. The Fed appeared to be on the brink of raising interest rates by 50 bps. As geopolitical tensions persisted, the Fed raised interest rates by 25 bps. This was also widely expected by the markets. During Thursday’s session, a significant amount of Put writing occurred at 17,200 levels. While the highest Call OI accumulation is 17300, the second highest Call OI accumulation is seen at 17,500 levels. In all likelihood, the Nifty will see a higher open Monday, but after that there could be some consolidation and profit taking at higher levels.

The 17,300-17,500 level is a critical zone to watch out for.

While a positive open to the week is expected, Nifty is likely to find resistance at the 17,390 and 17,500 levels. Supports are coming in at 17,200 and 17,010 levels. The trading range will remain wider than usual.

The weekly RSI is 52.25 showing a slight bearish divergence against the price. The weekly MACD remains bearish and remains below the signal line. A strong white body appeared on the candles, reflecting a strong upward direction bias that lasted all week.


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The pattern analysis of the weekly chart shows that Nifty had halted its technical pullback at 50-Week MA, which currently stands at 16,654. Not only has the index managed to break through the 50-week MA, but it has also moved above the uptrend line, which was previously a support and was breached by Nifty. At the moment, the index has stopped again near 20-Week MA, which stands at 17,331.

In the past two weeks, Nifty has pulled back nearly 1,616 points from the previous week’s low. It should come as no surprise if Nifty consolidates after an expected positive opening on Monday. It is strongly advised not to chase up moves from now on, but instead use it to take some money off the table and protect the winnings. There is also a strong possibility that the traditionally defensive groups such as FMCG, consumption, pharmaceuticals and IT will do better.

Overall, while gains remain very cautious at higher levels, we need to be vigilant in protecting them and keep leveraged exposures at modest levels.

In our look at Relative Rotation Graphs®, we compared several sectors with CNX500 (NIFTY 500 Index), which represents over 95% of the free float market capitalization of all publicly traded stocks.

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The analysis of relative rotational charts (RRG) shows that Nifty Bank, PSE, PSU Bank and Metal are placed within the leading quadrant. With the exception of metals, the other three indices are consolidating and declining somewhat on their relative momentum. The Nifty Auto Index is also in the leading quadrant, but it appears to be giving up its relative momentum very sharply and moving into the weakening quadrant.

Nifty Commodities and Energy are firmly placed in the leading quadrant and these groups will continue to outperform the broader markets relatively.

Nifty Media and IT are in the attenuation quadrant. They seem to be improving their relative momentum and trying to consolidate their position. The Nifty Realty index is in the lagging quadrant and appears to be improving from its relative momentum.

The Midcap 100 and consumption continue to languish in the weakening quadrant, but the latter appears to be improving on its relative momentum.

FMCG and the Financial Services indices are in the improving quadrant and are expected to continue to put on a resilient show in the coming week.

Important Note: RRGTM charts show relative strength and momentum for a group of stocks. In the chart above, they show relative performance against the NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.

Milan Vaishnav, CMT, MSTA, is a technical advisory analyst and founder of EquityResearch.asia and ChartWizard.ae based in Vadodara. He can be reached at milan.vaishnav@equityresearch.asia


This post Handy Outlook: Dalal Street Week Ahead: Short cover-led market rally may come to a halt soon was original published at “https://economictimes.indiatimes.com/markets/stocks/news/dalal-street-week-ahead-short-covering-led-market-rally-may-soon-come-to-halt/articleshow/90321973.cms”

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