Dalal Street Week Ahead: Be cautious! Nifty vulnerable to sharp profit booking
Synopsis
The Indian stock market gained for the fifth consecutive day as the Nifty rose by 2.5%, posting a weekly gain of 4.06% as the VIX tested its pre-pandemic lows. However, the low level of the VIX makes the markets vulnerable to sharp profit-taking bouts. Nifty has bounced off its 200-DAY moving average, which provides strong support. Additionally, 100-Week moving average at 17214 also acts as strong support. One must be cautious while chasing the up moves and trail stop losses of the long players.
Things now get more precarious than before. Nifty has bounced off from the 200-DAY MA which is placed at 17,655 making this point an important support for the index. On the weekly charts, it has held 100-Week MA as a support which is currently at 17214. This makes 17214-17655 a strong support area for Nifty in the event of any corrective move.
Importantly, India VIX continued its decline. This week it slipped below 11 to close at 10.95 by losing 5.87% through the week. This is a precariously low level. India VIX has also tested the pre-pandemic 2020 lows and this now stays overdue for a spike. While we continue to chase the up moves, one must never forget that any spike in the VIX can leave the markets extremely vulnerable to sharp profit-taking bouts.
The coming week is a short week. Indian markets would open on Tuesday as Monday is a trading holiday on account of Maharashtra Day. The levels of 18,130 and 18,250 will act as important resistance points. The supports will come in at 17,900 and 17,710 levels. The trading range is likely to get wider this week. The weekly RSI is 56.29; it has marked a new 14-period high which is bullish. However, it continues to stay neutral against the price. The MACD is bearish and below the signal line. The narrowing Histogram, however, shows this indicator is on the verge of a positive crossover.
Stocks Recommendations
Nifty Bank, Nifty PSU Bank, Auto, and the IT indices are inside the weakening quadrant. Among these four, while IT and Auto continue to rotate southwest, Bank Nifty and PSU banks are seen sharply improving on their relative momentum. Nifty Metal and Media are inside the lagging quadrant. Though they are also seen improving on their relative momentum, they may continue to relatively underperform the broader markets.
The commodities index has rolled inside the improving quadrant. Nifty Energy, Consumption, Pharma, and Realty Indices are also inside the improving quadrant and are seen firmly maintaining their relative momentum against the broader markets.
Important Note: RRGTM charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against Nifty500 Index (Broader Markets) 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 milan.vaishnav@equityresearch.asia)