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As Friday’s session ended, the domestic equity market ended a remarkable month, which was one of the best over past several quarters.
Nifty ended the month on a strong note, posting a gain of 831 points or 7.70 per cent.
After taking some breather earlier this week, the gush of liquidity resulting from unabated FII flows lent more strength to the market through the week.
Though the week remained volatile, Nifty ended with net gains of 167 points (+1.46 per cent) on a weekly basis.
In any such liquidity-driven rally, sometimes market technicals tend to take a back seat.
As such, it may still continue to keep dropping hints of a likely halt in the rally.
In the coming week, the market is likely to see a stable start but have the same market breadth.
If Nifty takes a breather and shows some corrective instincts, it should not come as a surprise as the daily charts have remained overstretched.
There are possibilities that the market would stall its upward move either at the start of the week or sometime in between.
With mild signals pointing towards this possibility, the 11,690 and 11,810 levels will act as potential resistance points.
Supports should come in much lower at 11,510 and 11,420 levels.
The trading range is likely to be wider than normal in the coming week.
The weekly RSI stood at 67.0954.
It has marked a fresh 14-period high, which is a bullish signal but does not show any divergence from price.
The weekly MACD is bullish and it continues to trade above the signal line.
On the candles, an Engulfing Bullish Candle has emerged.
When an engulfing candle appears during an uptrend, which is the case with Nifty now, it indicates a potential top.
It remains to be seen if the next candle closes below the top of the current candle.
Broadly speaking, even if the momentum persists in the coming week, Nifty is very much likely to show some slowdown.
Outperforming stocks are likely to slow down and we might see some weakening of market breadth.
In any case, traders should avoid chasing the upward momentum aggressively.
It is strongly recommended to keep trailing stop losses and utilise upward moves to protect profits and take money off the table.
A highly cautious view is advised for the coming week.
In our look at Relative Rotation Graphs, we compared various sectors against CNX500, which represents over 95 per cent of free float market-cap of all the listed stocks.
A review of the Relative Rotation Graphs (RRG) shows there are possibilities that the relative outperformers will remain so, while the rest may show some slowdown in momentum.
We expect relative outperformance from the realty and energy segments to remain firmly placed in the leading quadrant.
Bank NIFTY and IT indices also remain in the leading quadrant, but they are seen stalling the momentum along with the frontline Nifty index.
Along with this, a stable improvement in relative momentum is seen in CPSE, pharma and metal indices and in the metal index.
While CPSE and Pharma are in the improving quadrant, Infrastructure, PSU Banks, Nifty Next50, Consumption, FMCG and Media remain in the lagging quadrant.
Despite some sporadic stock-specific outperformance, these groups may see stalling of the momentum.
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 Nifty500 Index (broader market) and should not be used directly as buy or sell signals.
Stock Market
Dalal Street week ahead: Nifty looks overstretched, may take a breather
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