The follow-through strength post two months consolidation breakout backed by leadership in banking, IT and Telecom, metals (which represent over 50% weightage in Nifty) signifies inherent strength that makes us confident to revise our target to 16900 for coming month
By Dharmesh Shah
In the week gone by, equity benchmark Nifty 50 extended its record-setting spree over the second consecutive week as it scaled to new high of 16543. Nifty settled the week at 16529, up 1.8%. However, broader market indices extended breather as Nifty Midcap, small cap lost 1% and 2%, respectively. Sectorally, IT and financials remained at forefront while pharma took a breather.
Nifty Technical Outlook
– The index started the week on a subdued note and gradually accelerated upward momentum on expected lines after surpassing 16300 mark. The weekly price action formed a bull candle carrying higher high-low, indicating the continuance of positive bias. In the process, broader market indices have undergone profit booking after recent relative outperformance and currently poised at key support of 50 days EMA
– The follow-through strength post two months consolidation breakout backed by leadership in banking, IT and Telecom, metals (which represent over 50% weightage in Nifty) signifies inherent strength that makes us confident to revise our target to 16900 for coming month as it is 161.8% extension of mid-June rally (15450-15962) projected from July high of 15962. In the process, bouts of volatility at higher levels after recent strong run-up can’t be ruled out which would offer incremental buying opportunity, as buying on declines strategy has worked well over past 15 months. In the upcoming truncated week, we expect index to head towards our earmarked target of 16600.
– Our preferred sectors are BFSI, IT & Telecom, Metals, Realty and Consumption
– On the stock front, in large caps, we like TCS, Kotak Mahindra Bank, HDFC (Housing Development Finance Corporation), Bharti Airtel, Tata Steel, Titan Company, Reliance Industries Ltd (RIL) while in midcap space, we prefer, Mastek, Trent, Bharat Forge, Chambal Fertiliser, Escorts, Cummins, Radico Khaitan, Indocount Industries
– The Nifty midcap and smallcap indices maintained the rhythm of not correcting for more than 10% while sustaining above 50 days EMA, since June-20. In the current scenario as well, both indices arrested an ongoing corrective phase near 50 days EMA after correcting 6% & 8%, respectively from their all-time highs. We expect, broader market indices to 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) Last week’s low is placed at 16162
Bank Nifty Outlook
– The weekly price action formed a bull candle with a higher high-low signalling continuation of the up move. The index during previous week formed a higher base above the recent eight weeks’ consolidation breakout area which also coincides with the falling supply line breakout area joining highs since February 2021 (placed at 35600 levels) highlighting strength
– Going ahead, we expect the index to extend the current up move and gradually head towards the all-time high of 37700 levels in the coming month as it is the measuring implication of the recent range breakout (35800-34000)
– In the last seven sessions the index has retraced less than 38.2% of its previous five sessions up move (34115-36219). A shallow retracement post a sharp up move highlights a higher base formation and a robust price structure
– Structurally, the formation of higher peak and trough on the larger degree chart makes us confident to revise support base upward at 35000 as it is confluence of:
a) 61.8% retracement of the current up move (34115-36317) placed around 35000 levels
b) rising 10 weeks EMA placed around 35180 levels
c) The bullish gap area 4th August 2021 is also placed around 35200 levels
Among the oscillators, the weekly stochastic has rebounded from near the neutral reading of 50 and has generated a buy signal moving above its three periods average thus validates positive bias.
(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