The key to navigating market volatility is to have a firm focus on the relatively strongest pockets.

The five sessions of the previous week remained gripped by strong volatility. On four of the five days, Nifty broke through higher or lower. The wild moves are not reflected on the weekly charts, but close examination of the daily chart made this behavior of the index very apparent.

In the previous weekly note, it was mentioned that Nifty has tested double bottom support. This support has held throughout the volatile week.

Markets saw a trading range of 690 points, which remained fairly similar to the week before this one. Finally, after a strong rally led by short-covering on the last trading day, Nifty finished with net gains of 484 points (+3.07%) on a weekly basis.



Despite strong gaps to the upside or downside, volatility was largely unchanged on a weekly basis. It just fell 1.64 percent to 23.10. More importantly, from a technical perspective, Nifty has successfully defended the double bottom support zone of the 15,500-15,750 area.

As long as he’s above this zone, there’s a better chance Nifty will stabilize and find a footing on his own. In other words, a violation of this zone will invite incremental weakness. To translate this into simpler terms, Nifty’s price action against the 15000-15700 zone would be crucial to watch in the coming weeks.

This week the current series of derivatives will also expire; sessions can become dominated by activities focused on rollover. While a stable and positive start to the week is expected, the 16,480 and 16,670 levels will act as resistance points. Supports are expected to hit the 16,000 and 15,910 levels. The trading range will continue to be wider than usual.

The weekly RSI is 42.82; it is neutral and does not show any divergence against the price. The weekly MACD is bearish and remains below the signal line. A white-bodied candle emerged. Other than this, no other formations were noted on the charts.

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Pattern analysis of the weekly chart shows that Nifty has respected the classic double bottom support so far. This support exists in the range of 15,500-15,750 levels.

For the markets to find some footing and stability, keeping the head above the mentioned area will be of paramount importance for the markets.

Still, the key to navigating volatile markets is to have a firm focus on the relatively stronger pockets. We will see sectors like consumer, real estate, PSE and other similar groups showing resilience in times of weakness and relatively outperforming during moves to the upside.

However, the markets have yet to confirm its potential bottom. It would be prudent to keep leveraged exposures modest and maintain a highly selective and stock-specific approach to markets.

In our Relative Rotation Graphs® analysis, we compare various sectors to the CNX500 (NIFTY 500 Index), which represents more than 95% of the free float market capitalization of all listed stocks.

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Relative Rotation Chart (RRG) analysis shows that the Consumer, FMCG, Pharma, Infrastructure and PSE indices are likely to relatively outperform the broader markets as they reside in the leading quadrant. Metals, energy and commodities groups are also among the top but are likely to see much outperformance in specific stocks.

The PSU Bank Index continues to languish within the weakening quadrant. The media index is also within the weakening quadrant, but is seeing strong improvement on its relative momentum front and is moving towards entry into the main quadrant.

The Nifty IT Index and the Service Sector Index are in the lagging quadrant; they are expected to underperform the broader NIFTY500 index relatively. The Realty and Auto indices are also within the leading quadrant, but are strongly consolidating their relative performance while improving momentum along with Nifty Bank.

The Midcap 100 index is in the improvement quadrant; it is likely to consolidate its performance for the better.

Important note: RRGTM charts show the relative strength and momentum of a group of stocks. In the chart above, they show relative performance against the NIFTY500 Index (broader markets) and should not be used directly as buy or sell signals.

(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae and is based in Vadodara. He can be contacted at milan.vaishnav@equityresearch.asia)

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