The markets ended the previous week on a buoyant note while ending near high point of the day registering modest gains. The levels of 8,825-8,850 continued to act as immediate resistance. These levels are likely to continue to act as resistance in coming in week as well as evident from both daily and weekly charts. With the levels of 8,700-8,725 acting as supports in event of any consolidation or temporary downsides, the undercurrent remains grossly buoyant.
In the coming week, the levels of 8,820-8,850 will be the crucial levels to watch out for. Any move beyond this will see the markets scaling fresh highs. The RSI—Relative Strength Index on the weekly chart is 69.4176 and this has reached the highest value in last 14-periods which is bullish. No bullies or bearish divergence is seen on RSI. The weekly MACD continues to remain bullish while trading above its signal line. On the candles, a Big White Candle has occurred. This candle has occurred after some consolidation and therefore this lends credibility to the markets breaking out on the upside. The pattern analysis on the weekly charts suggests evident continuing uptrend since December-January 2016 trend reversal. There are some signs of weariness and fatigue on the Daily Charts since last 2-3 but it clearly shows the undercurrent remaining buoyant. Same is with the weekly charts wherein the markets have attempted to break on the upside as well. However, some weariness on weekly charts cannot be ruled out as the markets are on the verge of getting overbought. In the same breath, it is important to note that markets tend to remain overbought when fuelled by technical buoyancy in liquidity.
As evident from the Relative Rotation Graphs – RRGs, we will see clear relative outperformance from banking, energy and auto stocks. Private banks are expected to outperform selectively the Bank Nifty is expected to see itself consolidating after being overbought on daily charts but might catch up during the week. Pharma stocks will see themselves strengthening on weekly basis providing good entry points during the week. Nifty Junior is also expected to outperform.
Note: The Relative Rotation Graph shows 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.
(The author is Milan Vaishnav, CMT, consultant technical analyst, Gemstone Equity Research & Advisory)