Update for the week ending – 29th June 2014.

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 – 29^th 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.