In Charts: What Technicals Are Saying About Indian Markets

“The focus of the equity market has shifted from survival to revival with the lockdown now being lifted in most parts of the country,” said Shibani Sircar Kurian, executive vice-president, fund manager and head-equity research at Kotak Mahindra Asset Management Company. “The market sentiment has improved and has been supported by a gradual resumption in business activities.”

In the week ended June 26, the benchmarks ended higher, led by gains in PSU banks, consumer goods technology stocks. The S&P BSE Sensex and the Nifty 50 Index rose 1.3% and 1.4%, respectively, during the period. The broader markets outperformed the benchmarks over the past seven days as the Nifty Midcap 100 and the Smallcap 100 indices gained 2.8% and 2.9% each. All major sectoral indices, barring Nifty Realty Index, advanced.

“The Nifty has formed a spinning top candlestick pattern on the weekly charts. Spinning top denotes a candle with a small real body. It signifies lack of conviction among market participants and has significance if it occurs near any key resistance levels,” said Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research. “The current pullback has halted very close to the 200-week moving average and will be extremely crucial to observe the close levels in the upcoming week.

On the higher side, Vaishnav told BloombergQuint that, 10,550 and 10,665 will act as stiff resistance, while supports are expected to come in at 10,285 and 10,110.

With the headline indices expected to trade within a broad range, technical analysts remain focused on specific stocks and sectors going into the next week.

The Relative Rotation Graph, used to gauge relative strength of equities against a common benchmark and each other, suggests Tata Motors Ltd., HDFC Bank Ltd., Grasim Industries Ltd. and Eicher Motors Ltd. may relatively outperform the Nifty 50.

“All the four stock are currently in the improving quadrant on the relative rotation graph when benchmarked against the Nifty 50. But it is expected that they will continue to move higher while maintaining their relative momentum and move into the leading quadrant,” Vaishnav said.

Sun Pharmaceutical Industries Ltd., NTPC Ltd., Cipla Ltd. and Coal India Ltd., however, can be seen to be relatively underperforming the benchmark.

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

Key Insights

Gautam Shah, founder and chief strategist at Goldilocks Premium Research, will be keeping an eye out for the Nifty Next 50 Index over 12-18 months. While the Nifty Next 50 is seen making a massive 'lower low' in April, relative to the Nifty 50 it has not made a lower low. And whenever medium/long-term bottom happen, this is the kind of setup that come into play, he told BloombergQuint.

He expects the index to outperform the Nifty over the next six to 12 months. “If there is one index ETF that you should be buying then we strongly recommend Nifty Next 50. It could rise to the levels of 32,000 (from 26,000 currently) and could be the first index to go on and hit life-time high."