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Market Outlook: Global cues to dictate D-Street sentiment next week; highly selective trade advised

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Market Outlook: Global cues to dictate D-Street sentiment next week; highly selective trade advised


The week that went by fared very much on expected lines. In the week before this, Nifty ended flat with mild gains. However, this week, over the past five sessions, what markets saw can be called a phase of classic consolidation.

All five sessions were spent in a defined range with Nifty oscillating back and forth after slipping below a major trend line pattern resistance.

The trading range for the week remained narrower than usual with Nifty moving within a capped range of 381 points.

Markets ended the week with a net weekly loss of 199.55 points (-1.12%). Nifty navigated the monthly expiry on Thursday on a highly cautious note.

Both domestic and the global markets also had a close eye on the Fed Chairman Jerome

Powell’s comments at Jackson Hole Symposium that was flagged off on Friday in

Wyoming.

On the expected lines, the Fed indicated that stringent measures would continue until the inflation and the other macroeconomic figures reached the desired levels. Following its comments, the dollar strengthened, gold declined, and the US markets also reacted in a very negative manner.

Dow declined 1,008 points, while the broad market index S&P 500 declined 141 points.

The technology index Nasdaq lost 497 points. On the domestic front, Nifty has continued to resist a major pattern resistance as well.

The coming week is a truncated one with August 31, Wednesday, being a trading holiday on account of Ganesh Chaturthi.

It is expected that the markets will start the week on a weaker footing following a weak global trade setup.

milan27Agencies

This makes the levels of 17,700 the most immediate resistance point for Nifty. The coming week is expected to see levels of 17,600 and 17,780 acting as resistance points.

Supports are likely to come in near 17,400 and 17,280 levels.

The weekly RSI is 58.01; it stays neutral and does not show any divergence against the price. The weekly MACD is bullish and stays above the signal line.

A candle with a long lower shadow occurred. It is close to being called a Hanging Man; the only difference is that it has a small upper shadow.

The formation of such a candle with a long lower shadow near a pattern resistance increases the possibility of the up move getting stalled for some more time and the markets staying under consolidation a bit longer.

However, this will need confirmation on the next bar on the charts.

The pattern analysis of the weekly charts shows that Nifty continues to resist the important trend line pattern resistance.

This is a falling trend line. It begins from the lifetime high point of 18,600 and joins the subsequent lower tops.

This makes the levels of 17,700 the most immediate resistance point for Nifty.

Overall, the coming week is likely to stay highly stock-specific in nature. It is unlikely that we will see any particular pocket or group of stocks or any particular sector dominating the landscape.

We will see pockets of select stocks from various sectors outperforming the broader markets on a relative basis. Some knee-jerk reactions to the weak global trade setup cannot be ruled out. However, it is strongly recommended that shorting the markets must be avoided so long as Nifty keeps its head above 17,300 levels. A highly selective and cautious approach is advised for the coming week.

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (Nifty 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

milan271Agencies
milan272Agencies

The analysis of Relative Rotation Graphs (RRG) shows Nifty financial services, midcap 100, consumption, auto, PSU bank, and Bank Nifty remain in the leading . However, the consumption and auto groups are seen giving up on their relative momentum against the broader markets.

The remaining pockets are likely to show relative outperformance against the broader Nifty 500 index.

Nifty FMCG Index has rolled inside the weakening quadrant. Nifty Energy Index has rolled inside the lagging quadrant; however, it is seen on its relative momentum against the improving markets.

The pharma, infrastructure, and PSE indices are also seen languishing inside the lagging quadrant. The Media and the Metal indexes are also inside the lagging quadrant; they are seen sharply improving in their relative momentum and may put up a resilient show over the coming days .

The realty and Nifty services sector indexes are placed inside the improving quadrant. The IT index is also inside the improving quadrant but the trajectory of the tail shows it getting weaker in terms of relative performance.

Important Note: RRGTM charts show the relative strength and momentum for 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.

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