Update for the week ending – 27th July 2014

Update for the week ending – 27^th July 2014.

 Nifty Weekly Technical Analysis:

The Nifty took support at 7400 and bounced back to the 7800 mark during the week. The index failed to close above 7800 in Friday’s trade while foreign markets also closed in the red on Friday. Successive daily closings above 7800 could trigger further short covering, while a key risk looks to be the dollar index which bounced back from sub 80 levels and is trading near 81, which along with falling global markets is suggesting a flight to safety – in addition, the defensives such as IT, Pharma and FMCG indices also rose last week. The MACD histogram continues to weaken and we may see a bit of volatile sessions going ahead. FII index futures data shows that they have increased long positions during the week. Important supports lie at 7400, 7200. Closing below that zone will open the range till 6800.  

CNX MIDCAP Index: Momentum reading on the 14 week RSI has deteriorated considerably over the last few weeks while MACD divergence has also weakened during this time. These remain key risks in the short term; however the long term remains positive as long as 9800-9900 holds. The RS line below failed to cross above its previous highs which suggests muted performance vis-à-vis the Nifty.

CNX Small Cap Index: The index held support 5000 levels. The RS line is pointing down and failed to cross above its previous highs suggesting relative underperformance vis-à-vis the Nifty while slowing momentum as per the 14 week RSI weakening MACD are key risks. Key supports are 5000 and 4600.

CNX Auto: A Flattish RS line suggests that the Auto index might perform poorly vis-à-vis the Nifty, this is also evident from the price action of last 2 weeks as the Auto index did not participate much in the upside. For the near term one should be cautious as MACD is weakening after such a run-up, Supports for the index lie at 6500 and 6000.

CNX Bank Nifty: The index is facing considerable resistance near the 15,700 area and as highlighted the previous week- underperformance against the Nifty is likely as the RS line is pointing down and tests its 40 week MA. The momentum reading on the 14 week RSI has fallen below its pre-election run up readings and the MACD almost is at a sell signal, 14000 and 13000 remain critical supports for this index.

CNX Pharma: The Pharma Index made new life time highs this week, and with the negative price action in other indices this suggests a rotation back into the defensive pharma space which is evident from the RS line. The RS line failed to cross its 40 week MA which still not warrants a outperform as per our signal description.

CNX IT: The index overcame resistance around 10,000-10,200. Price action wise, if the index breaks out to new highs along with a positive crossover of its 10 and 40 week moving average then the trend will change to positive. Long term outperformance though is doubtful as the RS line vs the Nifty is still below its 40 week MA.

CNX FMCG: The FMCG Index took out its short term resistance of 18200 and has a lot of overhead resistance at 19,000. Though the index signalled is a buy with a positive crossover of the 10 and 40 week MA, long term outperformance seems muted as the RS line is below its 40 week MA while the index has room to run up as momentum readings on the 14 week RSI are pointing up but far from overbought.

CNX Metal, Infra, Energy & Realty: The 4 indices may see further correction/ consolidation in the coming weeks as momentum readings on the 14 week RSI cooled off from the overbought zone. However, long term outperformance of the Energy space looks doubtful as its RS line isbelow its 40 week MA.