Key points for the week
· NIFTY was strong during last week, forming an extended bullish candle on weekly timeframe
· Market has entered 11600-11700 supply zone has been tested twice earlier, and is already deep in the zone
· While BANKNIFTY, NIFTY MIDCAP50 and CNXIT are observed to be lagging NIFTY, sectors such as Infra appear very strong
During last week, the market remained very bullish, extending the run by over 350 points. The weekly chart shows an extended bullish candle, that has entered deep into the supply zone at 11600-11700. This is second retest of the same supply zone in four weeks.
The daily chart below shows that during last week #NIFTY closed higher every day except on Wednesday when it had a bullish pinbar doji. Now that the market has entered deep in the supply zone that it had tested earlier, we may expect the zone to have weakened.
#BANKNIFTY and #NIFTYMIDCAP, which are often believed to be leading indicators for economy, are showing weakness compared to NIFTY. Though their shapes are identical (showing tops and bottoms at relatively the same time), the extent to which they have rallied and pulled back suggest that these both are not having the same strength while moving up.
BANKNIFTY rallied on 22nd September spike to a prior supply zone (marked by blue arrow in the daily charts above), much similar to NIFTY. While NIFTY has rallied to the same area, BANKNIFTY is at much lower level. Weakness in banking sector is an indicator of economy. The concerns about mounting NPAs on public sector and private banks is reflected in the index. However, contrary to the S-H-S pattern that was posted last week in BANKNIFTY, this market has moved up suggesting failure of that pattern, which is a bullish sign.
Midcap Index also is considerably weaker than NIFTY and BANKNIFTY. Its spike on 22nd September even failed to reach the relative supply zone, unlike observed in NIFTY. From the top of that spike, that market pulled back almost to the origin of that spike – suggesting that midcaps are having much tougher time than blue chips. This is usually observed in weaker economic conditions, when growth of smaller companies is significantly reduced.
However, another sector index – CNX NIFTY INFRA – which is made of the largest infra companies in India is showing significant strength compared to the main index NIFTY. Infrastructure is believed to be another leading indicator as it facilitates other businesses. This index is trading at a significantly higher level than NIFTY, as this market has broken much above the relative high o 22nd September.
As we write, there are concerns about governance in INFOSYS, as a whistleblower has exposed misleading reporting in the company. On prior day the NIFTY ADR in NYSE dropped about 14%. Today (on 22nd October) the NIFTY futures are trading low in Singapore. During the week we may expect the market to retrace a little (given it is again in a supply zone) but otherwise we expect it to trade sideways before breaking above the zone. Lack of enthusiasm ahead of Diwali is also reflected in the market, which is looking for another announcement from the government to stimulate economy.