By Dharmesh Shah
Equity benchmarks witnessed a roller coaster ride during the previous week amid volatile global cues. Nifty ended the truncated week at 16451, down 0.5%. However, broader market indices extended profit booking as Nifty midcap, small-cap lost 1%, 3%, respectively. Sectorally, IT, FMCG stayed at forefront while financials and metal underperformed.
-Nifty surpassed our target of 16600 and gradually scaled to a fresh all-time high of 16701 during previous week. However, profit booking from 16700 levels dragged index lower. The weekly price action formed a high wave candle carrying higher high-low, indicating profit booking at higher levels.
-Our structural positive stance on Nifty gradually heading to 16900 in coming month remains intact, however in coming expiry week, Nifty is expected to undergo healthy breather in 16100-16700 range. Key point to highlight is that the Nifty has rallied ~1200 points over past three weeks that hauled weekly stochastic oscillator in overbought territory (placed at 90), indicating couple of days breather from here on cannot be ruled out. However, such a breather would make market healthy and eventually pave the way to head towards 16900 in coming month as it is 161.8% extension of mid-June rally (15450-15962) projected from July high of 15962. Thus, extended breather from here on should be capitalised to accumulate quality stocks as we believe strong support is placed at 16100 levels.
-Sectorally, IT, Consumption and Telecom are expected to outperform while selective buying expected in BFSI, Realty space
-On the stock front, we prefer TCS, Asian Paints, Bajaj Finserv, Bharti Airtel, HUL, Titan while in midcap space, we prefer, Bata India, Chambal Fertilizer, Tata Elexi, Mahindra Life, Mahindra Logistics, Brigade Enterprise, JK Lakshmi Cement, VBL.
We believe, the broader market indices approaching maturity of their price and time wise correction. Since March 2020, price wise the Nifty midcap and small cap indices have not corrected for more than 10%. Time wise, both indices have maintained the rhythm of not correcting for more than 3 weeks in a row. In current scenario as well, both indices corrected 6% & 8%, respectively from their all-time highs and approached its 50 days EMA. Thus, we expect broader market indices to maintain the aforementioned rhythm by arresting ongoing corrective phase in coming week or two and undergo base formation above 50 days EMA that would set the stage for next leg of up move
Structurally, The formation of higher peak and trough on the larger degree chart makes us confident to revise support base upward at 16100, as it is confluence of: (a) Positive gap recorded on 4th August (16131-16176) (b) past two week’s low is placed at 16162.
Bank Nifty Outlook:
-The Nifty Bank snapped two weeks winning streak to settle lower by more than 3%. The index contrary to our expectations breached the lower band of the last 10 sessions range (36300-35500) and closed the week at 35033 levels amid weak global cues.
-Going ahead, in the coming expiry week, Nifty Bank is expected to undergo extended consolidation in 34500-36300 range thus forming a base for the next leg of up move.
-Key observation is that the index since April 2021 has not corrected for more than three to four consecutive sessions, with four sessions of decline already behind us, we expect the index to maintain the rhythm and rebound in the coming couple of sessions
-Structurally, in the last 11 sessions the index has retraced just 61.8% of its previous five sessions up move (34115-36219). A shallow retracement highlights a higher base formation and a positive price structure.
-The index has immediate support base at 34500 levels as it is confluence of: (a) 80% retracement of the current up move (34115-36317) placed around 34500 levels (b) rising 100 days EMA also placed around 34460 levels. 80% retracement of the current up move (34115-36317) placed around 34500 levels; rising 20 weeks EMA also placed around 34509 levels.
-Among the oscillators, the weekly stochastic remain in uptrend and currently placed at a reading of 71 thus supports the overall positive bias in the index.
(Dharmesh Shah is the Head – Technical at ICICI Direct. Please consult your financial advisor before investing.)
ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 22/04/2021 or have no other financial interest and do not have any material conflict of interest. I-Sec or its associates might have received any compensation towards merchant banking/ broking services from the subject companies mentioned as clients in preceding 12 months