[Premium] Three Charts For The Week Ahead

Last week we focused on Crude Oil (in Rupees), Nifty FMCG & Nifty Private Banks.

Let's move into this week's topics. We have big, important moves to track this week.

1. The first chart we're looking at is Nifty 50. Nifty has spent the last three quarters below the key Fibonacci resistance level.

We can categorize the market environment into two categories.

i.) Outperformance in Smallcap relative to Largecap. It occurs after a significant market correction with broader participation from all sectors/stocks. It indicates the risk appetite of market participants.

ii.) Outperformance of Largecap relative to Smallcap. It occurs after a mature market move. In this period, significant correction happens in smallcap/microcap stock with large-cap names holding relatively well. The current move after the Nifty 50's all-time high in October 2020 comes into this category.

We monitor this ratio to gauge market risk appetite and the current move favors large-cap stocks.

Click on the chart to zoom in.

2. The second chart we're looking at is the iShares Emerging Market Corporate Bond ETF. It tracks the U.S. dollar-denominated, emerging market corporate bonds with 4.72% exposure to India. $CEMB bounced back from the critical support of March 2020 lows, where the last bear market ended. Emerging Market Bonds are among the riskiest assets in the fixed income universe. So, extremes in $CEMB tend to move in favor of the Nifty Smallcap Index. Here smallcap index above the 2018 high would be the major risk-on sign for the market.

3. The third chart we're looking at is Nifty Small Cap 100 along with the Percentage of stocks trading above the 50-DMA. Over the past week or so, we've seen a drastic improvement in participation in the broader market. A good representation of that is in the chart below.

The Percentage of stocks trading above 50-day moving averages has broken out above the downward sloping trendline after a series of lower highs and lower lows were in place since the end of 2020. With this breakout, close to 90% of small-cap stocks are now trading above the 50-day moving average.

Now what will be crucial going forward is Nifty Small cap 100 climbing back above its 2018 highs. Until then, we certainly have the participation coming through.

In our view, these charts will help set the tone for this week and provide information on how we should approach the market in the coming weeks.

Also, make sure to check out our other weekly post, "Trade Of The Week."

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team