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Nifty to consolidate next week, sector rotation to dominate action: YES Securities

Any throwback from all-time high levels should be considered as a retracement move to re-test support with the larger uptrend intact.
Nov 22, 2020 / 09:31 AM IST

The corrective move or retracement in an uptrending market always provides buying opportunities and the week gone by was no different. Momentum showed signs of slowing down in index when it was trading around the midpoint of current three-digit Gann channel i.e. 13,000 mark. However, price correction was restricted, as it defended three-digit Gann number of 127(00) aided by Friday's recovery.

During the week, our customized breadth index had corrected lower from overbought territory to neutral zone (68 percent) as per Thursday's close along with fall in index from the peak. This week's action shows that the benchmark index is hovering around the immediate support zone of 12,700, wherein, declines have been short-lived and buying interest has emerged in index biggies and BankNifty at lower levels. So, after a phase of strong rally, the benchmark index is consolidating at the top of the trend – a bullish sign. However, it is lacking momentum to provide a breakthrough above 13,000 mark. Whenever a strong trending market goes through consolidation, momentum tends to shift to broader markets. Nifty Midcap 100 index this week rallied by over 2.5 percent and the ratio of Midcap index versus Nifty shows a 100 percent bullish pole pattern on point and figure (P&F) chart, which implies outperformance of midcaps in the near-term.

Whenever, the index rallies into an uncharted zone, concerns tend to arise always that it has run up too fast. During such phase, it is essential to observe the behaviour of stocks which represents more than 60 percent of the weight in Nifty50. To decode the trend of the Nifty & its structure, we have created a customised index i.e. Equal Weighted Nifty Top 10 index. Readings of this index suggest that strong moves were seen in October & November 2020. With Customized Nifty top 10 trading around all-time high, constituents of the above-mentioned index are showing a robust uptrend. So far since March 2020, all the declines have been short-lived. Any throwback from all-time high levels should be considered as a retracement move to re-test support with larger uptrend intact.

Among the sectors, Nifty Auto index was in top gear this week, rallying by around 4 percent. In this month, Nifty Auto index has managed to break above the peak of August 2020. Going ahead, sustenance above two-digit Gann number of 86(00) is essential from hereon for the continuation of ongoing momentum. The ratio has also bounced off multiple lows of July 2020, implying a continuation of outperformance of auto stocks.

Nifty IT index showed signs of stability this week after a below-par performance in the last few weeks. The ratio of Nifty IT/Nifty has bounced back from the confluence of support (i.e. 100-DMA & point of polarity zone), which implies pullback moves in IT stocks in the near-term.

(Pritesh Mehta, Lead Technical Analyst - Institutional Equities at YES Securities.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Pritesh Mehta Pritesh Mehta is a Lead Technical Analyst - Institutional Equities at YES Securities. He holds a Master's degree from NMIMS. Prior to this assignment, he was associated with IIFL for 13 years as one of their lead technical analysts. His skills and forte include in-depth technical analysis and identifying actionable momentum trades. Pritesh excels in trend identification, with a special focus on inter-market analysis, gann & ratio charts.
first published: Nov 22, 2020 09:31 am

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