In Charts: What Technicals Are Saying About Indian Markets

The S&P BSE Sensex and the Nifty 50 Index declined 1.5% and 1.7%, respectively, for the week. While the broader indices outperformed, all sectoral benchmarks, barring Nifty Realty, ended lower. Nifty Metal fell the most.

That came as the Supreme Court offered no immediate relief to telecom operators on payment of pending dues. And the U.S. Federal Reserve poured cold water on hope of an early recovery, sending stocks tumbling.

After a strong opening at the start of the week, Nifty 50 turned volatile and closed lower.

“The market breadth for the week mostly remained weak. The index needs to decisively close above 10,150 to reclaim some momentum strength,” said Jimeet Modi, founder and chief executive officer at SAMCO Securities & StockNote. “We maintain a bearish outlook for the markets going ahead. Traders should sell on rally.”

Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, said on the weekly charts, the Nifty is facing strong resistance of its 200-week moving average that currently stands at 10,360.

This would be a key level to watch for traders as no sustainable upmove is expected until the benchmark closes above this, he said. “Volatility over the coming week is expected to rise and the trading range is expected to stay wider-than usual.”

Stocks In Focus

The Relative Rotation Graph, which helps gauge relative strength of equities against a common benchmark and each other, suggests that Tata Motors Ltd., Hindalco Industries Ltd., Grasim Industries Ltd. and Mahindra & Mahindra Ltd. could outperform Nifty 50.

“While M&M has moved into the leading quadrant on the relative rotation graph when benchmarked against the Nifty 50, the other three companies, currently in the improving quadrant, are also seen moving higher while maintaining its relative momentum,” said Vaishnav.

Coal India Ltd., Infosys Ltd., Nestle India Ltd. and Bharti Airtel Ltd. could be the relative underperformers. “Coal India has seen a sharp fall in momentum and has rotated back into the lagging quadrant from the improving quadrant,” Vaishnav said. “Apart from this, the other stocks have slipped into the weakening quadrant and appear to be heading lower while giving up on relative momentum against the Nifty.”

Sectoral Insight

The Nifty IT Index ended its three-week gaining streak, the longest since Feb. 23, as the gauge declined 1.5% in the week ended June 12.

Technicals indicate that the index may have topped out for the near term. “The IT Index has rallied more than 35% from its lows of around 11,000 in March to nearly 15,000 in June. However, on its way up, it has halted at the 50-week SMA (simple moving average) and formed a large bearish candle,” said Vaishnav.

“It also slipped into the weakening quadrant on the RRG chart when benchmarked against the broader Nifty 500 Index. This indicates that the IT pack is likely to relatively underperform the broader markets and it is a good time for investors to book profits.”

In technical analysis, the 50-day moving average is considered the first line of support in an uptrend or the first line of resistance in a downtrend. If the price moves significantly on either side of this indicator, it’s commonly interpreted as a change in trend.