In Charts: What Technicals Are Saying About Indian Markets

“The global cues were weak due to lacklustre Chinese economic data and confusion over the U.S. fiscal stimulus that weighed on investor sentiments. Even European markets fell by more than 1% after Britain added more European countries to its quarantine list,” said Siddhartha Khemka, head (retail research) at Motilal Oswal Financial Services Ltd. “On the domestic front, profit-booking continued as the valuations are no longer cheap and the earnings season is largely coming to an end. Market also turned cautious ahead of the Supreme Court’s AGR case hearing, which later got rescheduled for Monday.”

The S&P BSE Sensex and the Nifty 50 Index fell 0.4% and 0.3%, respectively, for the week. The broader markets outperformed the benchmarks as the Nifty Midcap and Smallcap indices closed with a gain of 1.7% and 2%. All sectors, barring banks and consumer goods makers, advanced.

“Nifty remains one of the relatively resilient markets if compared against global peers. But the U.S. dollar, which is oversold and showing bullish divergence on the lead indicators, may slightly hamper the moves on the upside of the global equities in general and that of emerging markets in particular in the event of it staging a technical pullback,” said Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research. The coming week, he said, will see the levels of 11,280 and 11,400 acting as strong overhead resistance points. The supports will come in at 11,065 and 10,900 levels.

As headline indices are expected to trade within a narrow range, technical analysts focus 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 that State Bank of India, Axis Bank Ltd., JSW Steel Ltd. and Titan Co. are likely to outperform the Nifty 50.

“Titan has shown a vertical improvement on the relative momentum and has moved into the improving quadrant. SBI, Axis Bank and JSW Steel are firmly placed in the improving quadrant and seen moving higher while maintaining its relative momentum,” said Vaishnav.

On the other hand, Bharti Infratel Ltd., Coal India Ltd., Oil & Natural Gas Corp. and HDFC Bank Ltd. may underperform the Nifty 50.

“Both ONGC and HDFC Bank have seen a sharp drop in momentum and rotated back into the lagging quadrant joining Coal India and Bharti Infratel in the process,” Vaishnav said.

Energy Sector Participation

The Nifty Energy Index has rallied close to 65% from its March low of 10,910. But more than two-thirds of these gains have been contributed by Reliance Industries Ltd. alone, which according to Bloomberg data has close to 37% weight on the gauge.

That, Tom Bruni, chartered market technician at All Star Charts, said caused the traditional Nifty Energy Index to near new all-time highs, while the equally-weighted index remained stuck below former support, showing a continued lack of breadth in the sector. “We, however, can start to see more stocks than just Reliance participating in the upside.”

“One positive is that the ratio of the equally-weighted versus cap-weighted Nifty Energy Index is showing a bullish momentum divergence,” Bruni said. “A bullish divergence occurs when prices make lower lows, but the RSI makes a higher low.”

This, he said, suggests some near-term mean reversion in the coming days and weeks as Reliance pauses and other energy stocks begin to move higher.

Also, Bruni said to watch out for equally-weighted Nifty Energy Index to reclaim support near 7,200 and the relative strength ratio of the two indices to stabilise and move above its 200-day moving average to strengthen the case for a more broad participation within the energy sector.