In this weekly blog we take a look as to which sectors of the Indian
market are likely to perform better vs. the benchmark Nifty index over the
medium to long term by analysing the relative strength of a sector-specific
index.
Relative strength (RS) measures the relationship between two assets. An
RS line is calculated by dividing the price of one asset or index by another. A
rising RS line means that the numerator is outperforming the denominator i.e.
the numerator will gain more than the denominator or it will fall less than the
denominator.
For example – when examining the CNX mid cap index, the RS line is
calculated by dividing the value of the CNX mid cap index by the Nifty index to
get the RS value. A rising RS line means that the numerator which is the Mid
Cap index will rise faster than the denominator i.e. the Nifty index. Or in a
down market it will fall less than the denominator.
Update for the week ending – 29th
June 2014.
Nifty Weekly Technical Analysis:
The Nifty ended the week flat
with buying support coming in at 7500 levels. The primary trend remains up as
the index is sitting firmly above its 10 and 40 week moving averages. On the
short term basis looks like we could see a minor rally as the index closed the
week above 7500 and in the index futures space the smart money - the FII’s
increased their net long positions while hedging their bets via put options.
CNX MIDCAP Index: In the short to medium term a retracement close
to the 10 week MA around 9800 cannot be ruled out. Over the long term the trend
in Mid Cap stocks looks to be positive as long as the index trades above the
9600-9700 zone. Also, outperformance relative to the Nifty index will continue
as long as the RS line trades above its 40 week MA.
CNX Small Cap Index: The index has short term supports at 5000 and
the 2010 highs of around 4600 levels should act as medium term supports. Over
the long term the trend in Small Cap stocks looks to be positive as long as the
index trades above the 4600 zone. Also, outperformance relative to the Nifty
index will continue as long as the RS line trades above its 40 week MA. A
rising 40 week MA on both the charts is supportive of this case.
CNX Auto: Long-term outlook is positive, with the RS line also
making new highs; the index can still go higher from here on. On the short
term, the index looks to be consolidating between 6500 and 6900. Medium and
long term supports are at 6000 and 5500.
CNX Bank Nifty: The index is trading above its 2010 and 2013 highs
around 13,000 which should act as supports on any major decline. Over the long
term the trend in Banking stocks looks to be positive as long as the index
trades above 13,000. Outperformance relative to the Nifty looks doubtful in the
short term as the RS line may test its 40 week MA.
CNX Pharma: The Pharma Index made new life time highs this past
week, but our stance wont change to outperform as long as the RS line is below
its 40 week MA.
CNX IT: The IT Index seems to be heading into a resistance zone
around 10,000-10,200 which looks very difficult to clear. However, the RS line below
its 40 week MA indicates underperformance.
CNX FMCG: The FMCG Index signalled an “avoid” this week as per our
signal description table above. The index closed the week below its 40 week MA.
The RS line had already triggered underperformance since the second half of
last year.
CNX Metal: The Metal Index was unable to sustain above its February
2012 highs and looks set to test the Jan 2013 highs and the 10 week MA of
around 2900 levels in the coming weeks. Overall, the break of a 4 year
downtrend on the index as well as its RS line along with a rising 40 week MA
looks positive over the long term.
CNX Infra: The RS line of the Infra index has broken a downward
trend after 6 long years and is sustaining well above its 40 week MA for the
first time since the financial crisis. This augurs well for the outperformance
of this sector.
CNX Energy: The Energy Index saw a minor correction this week and
has short term supports near 9500. The RS line seems to be testing its 40 week
MA. A close of the RS line below its 40 week MA is a risk to further
outperformance.
CNX Realty: The Realty Index is likely to see a choppy/ sideways
trading. The index has resistance around 310 which is the 2013 and 2012 high.
Over the long term the trend in Real Estate stocks looks to be positive as long
as the index trades above its 40 week MA. Also, outperformance relative to the
Nifty index will continue as long as the RS line trades above its 40 week MA.
