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D-Street week ahead: Realty bounce over; FMCG, pharma, IT may rebound

In a week that was better than expected for the market, the benchmark Nifty50 ended with net gains of 144 points or 1.52 per cent on a week-on-week basis. Though the market remained overbought on the weekly charts, it traded in a broad range. A fresh breakout is not expected this week, as it would be too soon and too fast, but we certainly expect the market to trade with a positive bias.

The Nifty50 faces resistance at 9,710 and 9,780 levels next week, while supports should come in at 9,500 and 9,430 levels.

On the weekly chart, the Relative Strength Index or RSI stood at 71.7787. Though it showed no divergence against the price, it remained in the overbought territory. The daily MACD has remained bullish even as it traded above the signal line. However, it is sharply moving towards reporting a negative crossover.

Pattern analysis on the weekly charts showed the market consolidated in a narrow range after an upward move that it saw it move from 8,950 to 9,000 level as it achieved a breakout. We expect this consolidation to continue and some area pattern to develop before the Nifty moves up again.

Overall, we should not fail to understand that longer the period of consolidation, healthier it will be for the markets. Such consolidation would give the market more impetus to head higher over the over the coming weeks.

For the coming week, we strongly recommend traders to approach with caution and protect profits at higher levels unless the Nifty50 breaches the previous high of 9,700-9,710 levels.

A study of Relative Rotation Graphs or RRG clearly showed that realty stocks, which led the relative outperformance over the past 10 weeks, is now ready to take a back seat.

Realty will be seen losing momentum over the coming weeks. FMCG will continue its stellar show, while pharma, IT and metal stocks should considerably improve their ground and be ready for some serious uptick. We will see broader indices like Nifty Next 50, Mid50 and Nifty100 lose momentum in the coming weeks.

Important Note: RRGTM charts show 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.

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. Contentions made in this article are mere observations. Investors should consult their financial advisers before taking any positions based on these remarks. Views expressed are the author’s own do not represent those of ETMarkets.com. The author can be reached at milan.vaishnav@equityresearch.asia)