MarketsmithIndia Articles

Defensive Sector FMCG on the Move

August 18 2021 | Reading Time: 10 Minutes
The Indian benchmark index moved to a new all-time high, and major sectors including banking, IT, pharmaceuticals, and metals, fared well. Now the next big question that investors have is, what next? We expect FMCG to do well and see it as poised to move upward in the coming weeks and months. Here is our special article on Nifty50 and FMCG Index.
 
Nifty 50 - 16,568.85
 

Nifty has achieved a new milestone and hit a high of 16,700 in today’s session. The benchmark index is in a strong bullish trend on multi-timeframe charts, surpassing new highs in almost every calendar month. At the current juncture, we noticed the following interesting technical facts about the index. 
 
  • The Nifty50 index is trending above all key moving averages on the multi-timeframe charts. And currently, it is placed above 4% and 12.75% above its 50- and 200-DMA, respectively. 
  • Since January, the index has been trending between an upward sloping parallel channel (black color parallel channel in the chart above). Today, i.e., on August 18, 2021, it has approached the upper band of the parallel trend line.
  • The momentum indicator RSI is trending upward in a bullish trajectory on higher time frame charts, i.e., weekly and monthly timeframe charts. Another trend following technical indicator, MACD, is trending in a positive trajectory on multi-timeframe charts, along with positive DMI crossover on weekly and monthly charts.
  • Another thing, volume is not picking up along with the upward trend. The current volume has been below average for the last seven trading sessions on the daily chart, along with a decrease in volume on a week-on-week basis as well. Further, the advance-decline ratio is deteriorating day by day as selling in the broader market picks up.
  • Further, as per the O’Neil Methodology of market direction, the market is currently in a Confirmed Uptrend with three distribution days in the last 25 trading sessions.
Even as the benchmark index remains in a bullish trend without any signs of negativity from a technical perspective, we expect Nifty50 to face resistance around 16,700–16,800 levels. It has approached the upper band of its parallel channel, and the momentum indicator, RSI, has already entered into an overbought zone on multi-timeframe charts. Hence, the index may take some pause or see profit-booking around the levels mentioned above. However, overall sentiment may remain bullish from a mid to long term point of view.
 
Nifty FMCG Index - 37,738.30
 

 
  • Nifty FMCG and Consumption sector outperformed the benchmark indices last week and closed at a new all-time high level as of August 18. 
  • This sectoral index is in a secular bullish trend, above all key moving averages on multi-timeframe charts. And currently, it is placed above 3.31% and 9.54% above its 50- and 200-DMA, respectively.
  • Despite more than 20% gain in the last 12 months, an analysis of this index’s relative strength versus Nifty50 indicates underperformance.
  • The momentum indicator RSI is trending in a bullish trajectory on higher timeframe charts, i.e., weekly and monthly. A detailed analysis of RSI on the monthly chart indicates “Inverted Head & Shoulders” pattern formation. Another trend following indicator, MACD, is trending in an upward slope along with a positive crossover. 
  • Apart from the above technicals,  the index formed an “Ascending Triangle” pattern between November and May, gave triangle breakout in the last week of May (marked in a black color triangle on the chart above). And as per this triangle formation, this sectoral index is poised to move toward the 40,000 mark.
  • Further, as per the O’Neil Methodology of market direction, this sectoral index is currently trending in a “Confirmed Uptrend” with two distribution days in the last 25 trading sessions.
This sectoral index is in a secular bull trend and extending gains on a month-on-month basis. Currently, it is trending in uncharted territory, and most probably, it will touch the 40,000 mark in the coming few weeks and months, which is the implied upside target as per the “Ascending triangle.” Also, a 161.8% “Fibonacci Extension” of a fall from September 2018 to March 2020 is placed around 39,600 level.

What do you think? Please email us any questions or comments.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.For more information, see our Legal disclosures here.

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