Meanwhile, forming series of higher highs and higher lows, the IT index trended higher yet again, surpassing the peak seen in third week of February 2020.
Indecisiveness at the top was the recurring theme for the index in this week's trade as rallies faltered between 10,800-10,900 zones (till July 16). The presence of multiple Gann numbers and index' struggle to surpass its 200-DMA had resulted in strong whipsaw moves in the early part of the week. However, things changed dramatically in July 17's trade as BankNifty made a roaring move, surpassing the hurdle of 22,000 during the intraday rally.
Even Autos & Metals participated in July 17’s upmove. For now, on the downside, support of three-digit Gann number of 106(00) is expected to hold out sturdily. Despite swinging like a pendulum in this week's trade, eventually, Nifty registered yet another weekly gain and closed at 10,902, near the upper-band of the recent trading range.
Despite a strong rally in the last two sessions of the week, range expansion is still awaited and time-wise correction could probably come to an end in next week's trade. Multiple gann pressure dates are seen next week. However, a typical trend is observed in the last two week's trade i.e. sell into strength and buy on corrections. A grinding market will always make life difficult for index traders and the best way to play this market is to focus on stock specific opportunities because the index is stubborn at the moment.
Among the major index biggies, Reliance Industries continues to be an outperformer. From the low of March 2020, the ratio of RIL/Nifty has outperformed the most. While, relative underperformance is seen in the ratio of Kotak Mahindra Bank, HDFC & ICICI Bank against the Nifty.
BankNifty was yet again the underperformer (week-on-week basis, it fell by around 1.6 percent). Similarly, the Nifty Financials Services index underperformed the Nifty. So, the leadership sectors failed to participate in the recent round of upmove. The ratio of BankNifty/Nifty fell sharply during the week. The broader ratio chart continues to paint a bearish picture which implies underperformance of banks against the benchmark index.
Even Nifty Private Bank index also disappointed, multiple attempts have been made by the ratio to surpass 1.17 in last few weeks, but it has failed to confirm a move above the same. Prior to this week, the ratio was consolidating near the hurdle zone. Irrespective of Nifty's comeback, ratio is languishing around the low seen in last week of May.
The sector rotation was quite evident in this week's trade. The Nifty Auto index made a comeback as recent corrective action came to an end with index taking support at its 20-DMA and bounding back sharply. The same moving average has been acting as a support since May 2020. On Point & Figure (P&F) chart, Nifty Auto witnessed a positive column reversal. A move above 7,215 would result in a double top buy and a ABC breakout which would lead to continuation of recent momentum. It is advisable to stick with earlier outperformers (M&M & Bajaj Auto) in the auto index to participate in this resumption of prevailing uptrend. Meanwhile, the ratio of the Nifty Auto index/Nifty is consolidating near the 50 percent retracement line. Breakout above the same would lead to outperformance of autos against the Nifty.
Meanwhile, forming a series of higher highs and higher lows, the IT index trended higher yet again, surpassing the peak seen in the third week of February 2020. However, with the theme of sector rotation likely to be intact, booking profits after a series of sharp upticks appears to be the right strategy in IT stocks.
The author is Lead Technical Analyst - Institutional Equities at YES Securities.
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