Dalal Street week ahead: Nifty50 may face resistance at 9,000, but is gearing up for a rally

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The domestic equity market saw sharp volatility on Thursday, especially in the second half of the session, which was higher because of expiry-led rollovers. During the short week that came to an end on Thursday, the Nifty logged decent gains of 117.80 points or 1.34 per cent. The week also remained highly eventful as the Nifty50 posted fresh 52-week highs as it approached key resistance area.

On top of it, the index formed some interesting patterns. During the week went by, the Nifty50 continued to advance to its logical expected target of 9,000 mark, and hit a weekly high of 8,982. The coming week is most likely to be eventful and volatile as the previous week.

On Monday, we expect a tepid start to the market. The 8,968-9,000 zone will remain a key resistance area in the immediate short term. We can see corrective activities to persist and this may lead to sharp volatility.

For the coming week, the 8,990 and 9,195 levels will be the broad resistance area for the Nifty50. Supports are seen at 8,845 and 8,750 levels.

The Relative Strength Index or RSI on the weekly chart stands at 65.8732 and it has reached its highest value in last 14-periods, which is a bullish signal. It does not show any bullish or bearish divergence against the price. The weekly MACD remains bullish, as it trades above its signal line. No major formation has been observed on candles.

Pattern analysis presents a very interesting picture. It is quite evident that the Nifty is overbought on the daily chart and has approached its key resistance area in form of a double top. However, moving back to the weekly charts, the patterns present a relatively bullish picture. To begin with, the Nifty50 has approached its major pattern resistance area in the 8,960-9,000 zone on the weekly chart as well. It has made a double top, spanning over nearly eight months.

On a larger note, it has made a potential Inverse Head and Shoulder formation. It is extremely important to note that this is a not a classic, but a quite complex Inverted Head and Shoulders formation, which requires validation over the coming days. In the immediate short term, we just cannot rule out market facing resistance at the 9,000 mark as it consolidates in a broad range, which may result in intermittent bouts of profit taking.

Even if the weekly charts show more room to move up, the serious resistance area on the weekly charts and the overbought nature of the market on the daily chart are all likely to prevent any runaway rise in the market. There is a frenzied chase by liquidity but the current structure of the market will certainly infuse strong volatility in the coming weeks. We should be ready to brace and tackle sharp volatile movements on either side in the coming week while remaining highly stock-specific.

A study of Relative Rotation Graphs or RRG clearly shows the IT pack has been steadily losing momentum on a week-on-week basis. Though it remained highly volatile on news of share buyback, on a weekly basis it is likely to lose momentum even if it remains volatile on daily basis.

The realty and FMCG packs will see relative outperformance with some contribution from the smallcap pack as well. Despite some stock-specific outperformance, the metal and energy packs will continue to show weakening momentum compared with the Nifty50. Underperformance from the pharma pack is likely to persist. Some attempts to consolidate and score on relative outperformance will be seen from the auto pack as well.