In Charts: What Technicals Are Saying About Indian Markets

“The market seems to be oscillating between greed and fear. On one side there is hope of a gradual economic recovery along with positive management commentary (corporate earnings), on the other side, there is a fear of rising Covid cases leading to a lockdown again,” said Siddhartha Khemka, head – retail research at Motilal Oswal Financial Services Ltd.

In the week ended July 11, the Sensex and the Nifty 50 Index advanced 1.6% and 1.5%, respectively. The broader markets tracked the benchmarks. Most sectoral indices gained during the week, led by metals, banking and IT stocks. Only the Nifty Media Index lost.

“The Nifty as per weekly chart formed a spinning top type candle pattern. This formation on the candles shows diminishing momentum and lack of consensus among the market participants. If the spinning top emerged after a strong rally, it has a potential to stall the present trend, at least, temporarily,” said Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research. Also, the negative crossover of the 50-week moving average below the 100-week moving average indicates a likely onset of some intermediate weakness, he said.

According to Nagaraj Shetti, technical research analyst at HDFC Securities, the short-term trend of the Nifty is range-bound with a weak bias. “The overall daily/weekly chart pattern indicates a possibility of a reversal in the Nifty around 10,800 levels in the coming week. The beginning of a decline from the highs is likely to bring bears into action,” he told BloombergQuint. “Key supports to be watched for the resumption of weakness are at 10,700. Any upside bounce could find stiff resistance around 10,800-10,850 levels.”

With the headline indices expected to trade with a downward bias in a narrow 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 Steel Ltd., JSW Steel Ltd., Eicher Motors Ltd. and HDFC Bank Ltd. may relatively outperform the Nifty 50.

“Tata Steel, JSW Steel and HDFC Bank are currently placed in the improving quadrant. But, going forward it is expected that they will continue to move higher while maintaining their relative momentum and move into the leading quadrant along with Eicher Motors,” Vaishnav said.

NTPC Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd. and Cipla Ltd., however, can be seen relatively underperforming.

“NTPC has seen a sharp fall in momentum and has rotated back into the lagging quadrant. TCS and Cipla are already in the weakening quadrant and appear to be heading lower. HCL Tech which is in the leading quadrant is expected to head lower while giving up on its relative momentum against the Nifty,” Vaishnav told BloombergQuint.

Sectoral Insight

The Nifty Realty Index has rallied close to 30% from its March low but after two successive weeks of decline, the gauge has managed to close with gains.

The Nifty Infra Index—that rebounded more than 50% from its March low—snapped its three-week gaining and posted the biggest weekly loss in nearly a month.

“The relative strength comparison of the two sectors indicates that the realty index is set to start outperform the infra index. In simple words, it is time to book profits from the infrastructure stocks and move money to the realty stocks,” Vaishnav said. This, he said, is further confirmed with the Nifty Realty Index moving into “improving quadrant” when benchmarked against the broader Nifty 500 Index.