In Charts: What Technicals Suggest About Indian Markets

“Market continued its range-bound movement with intermittent hiccups due to rise in daily Covid-19 cases cushioned by hopes for an early vaccine which capped the upside,” said Jimeet Modi, founder and chief executive officer at Samco Group. Information technology companies surged on the back of sound operating margin expansion and future growth guidance, he said.

The S&P BSE Sensex and the Nifty 50 Index advanced 1.2% each and the broader markets ended marginally lower. IT, pharma and FMCG indices led sectoral gainers. Realty, PSU banks and media stocks ended lower.

Nifty has formed a ‘hanging man’ candle pattern, an indicator of a potential reversal in an uptrend, said Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, referring to the candlestick pattern with a small real body and a long lower shadow and no upper shadow. “This gives an impression that the market even with the liquidity push is facing resistance at higher levels.”

According to Nagaraj Shetti, technical and derivative analyst, HDFC Securities, the near-term uptrend of Nifty seems to have sustained after a small dip and further upside is expected in the coming sessions. “The next upside levels to be watched are around 11,250. Immediate support is placed at 10,850. However, having stretched its uptrend above the resistance, one needs to be cautious of longs at the highs. As there is a possibility of reversal from the highs.”

Among individual stocks, the Relative Rotation Graph, used to gauge relative strength of equities against a common benchmark and each other, suggests strength in autos and select Nifty 50 constituents. Banking and financial stocks could relatively outperform the index.

State Bank of India and Axis Bank Ltd. have moved into the improving quadrant and are moving higher while maintaining their relative momentum, according to Vaishnav. Similarly, Bajaj Finance Ltd. and Bajaj Finserv Ltd., placed in the improving quadrant, are also expected to outperform the Nifty, he said.

On the other hand, Dr. Reddy’s Laboratories Ltd., Nestle India Ltd., Bharti Airtel Ltd. and Britannia Industries Ltd. could be the relative underperformers. “After several weeks of strong moves, Britannia is seen giving up on its relative momentum and has slipped into the weakening quadrant, indicating signs of topping out,” Vaishnav said. The other three stocks in the weakening quadrant, he said, also appear to be heading lower while giving up relative momentum against the Nifty.

Sectoral Insight

The Nifty Consumption index could see strong gains over the next six to eight weeks, Brijesh Bhatia, research head, Dealmoney Securities Pvt., told BloombergQuint. Since hitting a multi-year low of about 3,600 in March, the gauge has been steadily rising in a higher top, higher bottom formation, he said, adding that the index successfully managed to retest its previous high of 4,800 in June and bounced back higher, indicating strong upside momentum.

The derivatives data of the underlying index heavyweights such as ITC Ltd., Hindustan Unilever Ltd., and Asian Paints Ltd. indicates that traders are anticipating an upward movement and creating bullish positions, according to Bhatia.

"The Nifty Consumption index has rallied 35% from its March lows as compared to 50% plus in energy and metals stocks. Therefore, we could see some sector rotation happening here. We are bullish on the consumption over the next couple of months.”