Whipsaw moves in market likely in near term; Nifty Auto/Nifty50 ratio heading towards 2019-peak

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Whipsaw Moves In Market Likely In Near Term; Nifty Auto/nifty50 Ratio Heading Towards 2019-Peak

Nifty Auto index stood out this week as stocks from top tier & second tier participated. Relative strength is seen in Nifty Auto index against Nifty.

Pritesh Mehta Dec 5, 2020 / 01:27 PM IST

Post previous week's low of 12,790, there is no looking back at Nifty's direction. It edged higher this truncated week as retracement moves were once again short-lived. The benchmark index escalated further into unexplored zone yet again, thereby witnessing another record high of 13,280.

Broad-based participation on Dalal Street and comeback of stocks/sectors that have been major underperformers for most part of 2020 aided this week's rally. Index is approaching three-digit Gann number of 133(00), move above the same would result in shift of orbit on the upside as continuous sectoral churning dominates the market.

Our customized Equal Weighted Nifty Top 10 index includes top 10 constituents of the benchmark Nifty, which contributes to over 60 percent weightage in Nifty. Post a massive rally, it is essential to re-visit the leadership stocks. One common trait visible in our customized index is that rallies are followed by period of consolidation since May 2020 (which ideally results into sector/stock churning).

Moreover, such time-wise corrective move has resulted in a move back to its 50-EMA. Currently, disparity is seen between the current price and moving average. Such deviation tends to catch-up. So, whipsaw moves are likely in near term. Meanwhile, for Nifty midpoint of current three-digit Gann channel (i.e. 13,000) would act as an immediate support. Our customized Nifty breadth bounced back from neutral terrain to 86 percent. Such short-lived correction in breadth are common trait in a bullish market.

Nifty Midcap index's performance this week was in line with benchmark index' returns - thanks largely to Nifty's sharp rally in Friday's session. However, ratio is currently trading around point of polarity zone of 1.52, follow through of momentum is required for midcaps to continue recent outperformance.

Theme of left out sectors/stocks participating continued this week as Nifty PSU bank index was the major outperformer, rallying by over 8 percent. Even Nifty Media index rallied by over 5 percent. Ratio chart of Nifty Media index/Nifty has made a comeback after breaking below its previous low. Such reversal post breakdown tends to result in sharp rally, implying outperformance of media stocks.

Nifty Auto index stood out this week as stocks from top tier & second tier participated. Relative strength is seen in Nifty Auto index against Nifty. Ratio is heading towards the peak of November 2019, last month it had failed to sustain above the same. Only follow through momentum would result in continuation of strength in Auto stocks.

(Pritesh Mehta is the Lead Technical Analyst - Institutional Equities at Yes Securities.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Pritesh Mehta is a Lead Technical Analyst - Institutional Equities at YES Securities. He holds a Master's degree from NMIMS. Prior to this assignment, he was associated with IIFL for 13 years as one of their lead technical analysts. His skills and forte include in-depth technical analysis and identifying actionable momentum trades. Pritesh excels in trend identification, with a special focus on inter-market analysis, gann & ratio charts. '); } else{ $('#outbrain_6192751').html(''); } }