Sector Technicals for the week ending – 21st September 2014.

Sector Technicals for the week ending – 21^st September 2014.

The below table is just a scan that I run to check the overall trend of an index and its performance vs. the benchmark Nifty. For further information please read the signal description and the detailed sector technical analysis further below. For more information on relative strength please click on the Relative Strength section above.

Nifty Weekly Technical Analysis:

As mentioned last week, the previous resistance of 7850-7950 acted as a support zone and the index bounced back sharply to close near its resistance zone near 8150-8200 levels. Momentum reading as per the 14 week RSI is in the overbought zone. A weekly close below supports along with a weakening RSI would be the first red-flag. So far, price action suggests the index can move in a range with supports at 7850-7950 and resistance in the 8150-8200 zones. In the derivatives space, FII’s continue to be net long in index futures but have reduced their net longs over the previous week while simultaneously increasing their long positions in put options (this has happened 2 weeks in a row now) suggesting some hedging activity indicative of a moderately bullish to range-bound trading view for the rest of the month. As mentioned last week the India VIX continues to make a new low and unless we see a spike in the India VIX till then it should be smooth sailing for our markets.

Sector Technicals:

CNX Auto: No major change to last week’s view as the Auto index saw another new high and also a new high on the RS line suggesting that the uptrend and outperformance vis-à-vis the Nifty index is still intact. Price action wise looks like the auto index is likely to trade in the price channel as shown below, with major support in the 7200-7300 zones.

 

Bank Nifty: There is a good support zone in the 15500-15600 area. Momentum wise, the RSI reading is inching towards overbought and a strong weekly close along with overbought readings would signal strength in banking stocks. As long as 15500-15600 holds on a weekly closing basis the uptrend is intact. On relative terms, the RS line vs. the Nifty is inching higher with a rising 40 week MA which is supportive of long term outperformance.

CNX Pharma: The Pharma index made a new high and the uptrend remains intact as per the trend-line shown below. A weekly close below 9500 would jeopardize the short/medium term uptrend. However, one should tread cautiously in the Pharma space as the index is highly overbought with a reading of 84 on the 14 week RSI.

CNX FMCG: The FMCG index is above major resistance and ended the week flat. A weekly close below 19,000 would endanger the short term uptrend.  The FMCG index is not likely to outperform the benchmark Nifty as the RS line is still in a downtrend with a downward sloping 40 week moving average.

CNX IT: As mentioned last week, the IT index is in an uptrend and broke out to new highs. Momentum readings favour the bulls as it is in the overbought zone and with no overhead resistance, the IT index could possibly be a big gainer in the next few weeks. The uptrend is intact as long as long as it trades above the 10400-10500 zone. Though the index has outperformed the benchmark over the last few weeks, on a longer term we would classify it as an outperformer only if its RS line manages to trade above its 40 week moving average.

CNX Infra, Metal, Energy & Realty: These 4 indices are underperformers vs the benchmark of which Infra and Energy look positive on a short term basis as they are trading above supports and have broken above their short term downtrends. Realty and Metals seem to be at a critical juncture – right above prior support and just below their short term downtrend line. A wait and watch approach would be better to see if these 2 indices break either of the zones.   

CNX Small Cap and Mid cap: The Mid cap index underperformed last week but held critical supports of 11400-11500, a weekly close below these supports could make the short term trend suspect. Small caps are still positive as they are trading above an important support zone of 4500-4600 and a weekly closing above the prior resistance of 5500 could lead to a sharp rally to the upside.