We had reported a ‘Shooting Star’ formation on candles in our previous weekly note. This formation has expectedly marked an immediate top for the markets. This week, the domestic equity markets have declined by 1 per cent on weekly basis and the formation on the charts suggest a choppy week ahead and we do not expect any runaway rise happening in coming day. The markets are expected to trade in a range with the levels of 8,968 acting as stiff resistance.
In coming week, the levels of 8,845 and 8,968 will act as major and stiff resistance levels for the markets. The supports will come in at 8,980 and 8,620 levels. The RSI—Relative Strength Index on the weekly chart is 66.4487 and it has just moved below from a topping formation which is bearish. It does not show any bullish or bearish divergence or any failure swings. The Daily MACD stays bullish as it trades above it signal line. Following formation of a shooting star formation previous week, this week has seen a falling window occurring. This is typically a gap wherein the bottom of the previous shadow is above the top of current shadow. This implies continuation of downward pressure and temporary resistance to the up moves in the immediate short term.
If we have a look at pattern analysis, the markets are currently in the support zone of the rising channel drawn from the February lows. There would be no technical breach on charts so long as Nifty 50 index continues to trade above 8,580-8,620 zone. These levels will continue to act as critical support zones in the coming days. It is widely expected that there will be no runaway rise in the markets and it would continue to remain choppy while digesting the FOMC outcome in between on September 21.
A study of Relative Rotation Graphs (RRG) suggests that domestic equity markets will see out-performance coming to midcaps, media, auto and energy stocks. PSU Banks and BankNifty and Metals will see some momentum losing in coming week. We will also see considerable improvement in Pharma and IT stocks in coming days.
(The author is CMT, Consultant Technical Analyst, Gemstone Equity Research & Advisory Services)