WEEKLY MARKET OUTLOOK FOR DECEMBER 19 THRU DECEMBER 23,
2016
Following a Bullish Hammer formed on the Weekly
Charts three weeks back, the NIFTY has formed a temporary bottom, pulled back
and in this week consolidated as expected in our previous note. In the Week
gone by, the NIFTY has ended with net loss of 122.30 points or 1.48% but has
formed a lower top but higher bottom on the Weekly Bar Charts. In the coming Week, we expect the NIFTY to
continue to consolidate with a positive bias and the levels of 200-DMA on the
Daily Charts and the levels of 8275 on the Weekly Charts will be important to
watch out for. It would be important for the Markets to move past these levels
in order to sustainably resume its up move.
In the coming week, the levels of 8190 and 8175 will remain
important resistance levels to watch out for. The supports will come in at 8060
and 8000 levels.
The RSI—Relative Strength Index on the Weekly Chart is
43.1269 and it remains neutral and it shows no bullish or bearish divergence or
any failure swings. The Weekly MACD is bearish as it continues to trade below
its signal line. However, has started to narrowly correct the gap. On the
Candles, Harami pattern has occurred. This is formed when the current
Candle is engulfed by the previous candle and they are of opposite color.
However, given the size of the Candle, they are not classical Harami but still
holds potential to halt the downsides. This increases the chance that the NIFTY
will halt its downside this week, consolidate and attempt to move up. As
always, this will need confirmation in the following week.
On the derivative front, we have seen sustained reduction in
Open Interest while the NIFTY declined. This signifies reduction / unwinding of
positions. It would be important to see if this gets replaced with the fresh
longs.
While having a look at pattern analysis, the NIFTY has seen
retracement while coming off from a Double Top formation from 8968 levels. This
Double Top formation has occurred over a 6-month period and poses formidable
resistance. The NIFTY declined from 8968 to 7928 levels and has attempted to
form a base by showing some signs of reversal. A temporary bottom has been
formed at 7928 and the NIFTY has been attempting to form a base and reverse its
direction. As of now, the fall has been arrested and it would be important to
see if the NIFTY moves past critical levels to resume its uptrend.
Overall, the NIFTY will have to see itself moving past and
trading above 8275 levels to resume its uptrend. In event of NIFTY not moving
past these levels, it is expected that it will continue to consolidate in a broad
range. The US and European Markets have been trading “overbought” but are
continuing to display great amount of strength. Even if they correct or
consolidate in coming week, some divergence in performance between NIFTY and
these Markets cannot be ruled out. We continue to reiterate to avoid shorts
until there is any significant structural breach and utilize all downsides to
make moderate but select purchases.
A study of Relative Rotation Graphs – RRG suggest that just
like previous two weeks, we will continue to see sustained out-performance and improvement in CNX IT Stocks. Though leadership
within the IT Index is likely to change, we will see them improving their
performance. Apart from this, we will also see improved performance in some
select PHARMA and INFRA stocks. CNXMETAL and ENERGY stocks are likely to lead
if NIFTY gains in coming week. Some select MID50 Stocks and AUTO stocks will consolidate
while FMCT is likely to continue to lag the Markets. Some good performance from
PSUBANKS can also be expected in coming week.
Important Note: RRG™ 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. He can be reached at milan.vaishnav@equityresearch.asia)
Milan Vaishnav, CMT
Technical Analyst
(Research Analyst, SEBI Reg.
No. INH000003341)
Member:
Market Technicians Association, (MTA), USA
Canadian Society of Technical Analysts, (CSTA), CANADA
Association of Technical Market Analysts, (ATMA), INDIA
http://milan-vaishnav.blogspot.com
+91-98250-16331
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