The weekly charts had reported a positive breakout while the daily charts remained overbought and exhibited a fatigue.
We had mentioned in our previous weekly note that there are slight contradictory signals on the daily and weekly charts. The weekly charts had reported a positive breakout while the daily charts remained overbought and exhibited a fatigue. The markets traded very much on these lines. The Friday’s session saw some corrective pressure as the Nifty ended down by 85.80 points or 0.96 per cent, the markets gained 0.60 per cent on a weekly basis thereby consolidating on the weekly charts as they too turn “overbought”.
In the coming week, the level of 8,968.70 has now become an immediate top for the markets and may act as upper end of the band in which the markets may consolidate. On the lower side, the levels of 8,750-8,800 would be crucial to watch out for on weekly basis acting as the lower end of the possible consolidation. The RSI—Relative Strength Index on the weekly charts is 70.5763 and it has reached its highest value in last 14-periods which is bullish. However, it trades in “overbought” territory. The Weekly MACD stays bullish trading above its signal line. On the candles, a long upper shadow occurred and since it has occurred near the high price level, it may be potentially bearish. Also, a shooting star-like formation with a small real body and a long upper shadow has also occurred. Since this has occurred during an uptrend, this may also potentially halt a rally and push the markets into consolidation. Pattern analysis also suggests a possible consolidation. Though the uptrend from the lows of December-January remains intact, the markets have been exhibiting signs of fatigue and the upward rising channel is narrowing as well. The levels of 8960-8800 would be crucial to watch out for and the Markets may oscillate between these levels in coming week. Runaway rise is not expected.
As evident from the Relative Rotation Graphs – RRGs, just like previous week, we will continue to see relative outperformance from the PSU banks, energy, infra, pharma, and media stocks. Indices like Midcap and Nifty Junior will outperform. After good performance over previous weeks, Bank Nifty is likely to consolidate in a capped range and see some corrective pressure. IT Pack will also see itself accumulating at its current levels and may see a bottom being formed.
(The author is Milan Vaishnav, CMT, Consultant Technical Analyst, Gemstone Equity Research & Advisory Services)