Nifty gains continue a Newsmid narrowing trading range and low volatility
The markets continued with their unabated move in the week that went by and ended once again with net gains. While continuing with the advance the Nifty 50 Index extended its move higher. However, compared to the previous week, this time, the trading range got narrower, with the Index oscillating by 408.30 points against 824 points.
This can largely be attributed to the absence of volatility. Against 4.72% higher last week, India VIX this week shed 8.02% to 12.69 on a weekly basis. While staying tentative at higher levels, the headline index closed with net weekly gains of 313.25 points (+1.30%).
Even as the up moves extend, markets continue to throw up signs of a consolidation at higher levels. Also, the 24,350-24,450 zone remains pretty strong as resistance for markets going by options data. This doesn’t mean big corrective moves are necessarily going to happen soon, but it definitely points toward some measured retracement or consolidation at these levels or slightly higher.
The point is made more evident by the consistent addition in Call OI at 24300 and higher strikes. This can also mean that if 24500 is taken out with conviction, up move may further get extended, but that would make the markets, which are already over-extended, even unhealthier than what they are now.
The supports come in to 24000 and 23735, while levels of 24450 and 24675 are likely to act as immediate resistance levels.
This also shows that a large standard deviation from the mean is already in play, as Nifty’s nearest 20-week MA and 50-week MA are as far as 1615 points and 2940 points respectively, from the current market level.
This highlights the danger that the markets have because, although any little event may make the markets revert to the mean or even consolidate in a ranged manner, the weekly RSI is 74.44. It stays overbought and remains neutral without showing any divergence against the price. The weekly MACD is bullish and stays above the signal line.
The pattern analysis shows that the Index has, once again, ended above the upper Bollinger band. This is quite bullish but also creates the chances of price pulling themselves back inside the band. As mentioned above, the 20-week MA is the nearest support, which is placed at around 1615 points below the current levels at 22708. However, prior to this, a pattern support comes in at 23800.
The uptrend remains intact, and there are absolutely no signs of any major corrective move taking place. Markets have not shown any major signs of weakness but do look prone and stay vulnerable to measured retracement or ranged consolidation over the coming days. They stay quite overextended and remain deviated from their mean and this keeps them vulnerable at higher levels.
It is suggested that while moving with the trend, it is advisable to work in parallel on protecting profits at higher levels. While maintaining leveraged positions at modest levels, one should keep fresh purchases limited only to defensive pockets and in those stocks that are indicating improvement in relative strength. We take an extremely cautious view for the next week.
Relative Rotation Graphs: The chart preceding depicts the relative levels and the potential trends for the group of sectors, which includes the Realty sector—Nifty Realty, Consumption, and Auto, along with the Midcap 100 index.
All these groups seem to be taking a breather and giving up a bit on their relative momentum against the broader markets. The Nifty Metal Index has rolled into the weakening quadrant, while Nifty PSE, Infrastructure, PSU Bank, Commodities, and Energy are also inside the weakening quadrant.
Both these groups are inside the weakening quadrant, but they are showing improving relative momentum, and therefore, in the days to come, they may display better relative performance against the broader Nifty 500 index.
Bank Nifty, Nifty Media, Financial Services, and FMCG indices are placed inside the improving quadrant; the FMCG Index among these is seen giving up on its relative momentum against the broader markets.
