By Dharmesh Shah
The Nifty ended truncated week at 17758, up 0.3%. While midcaps relatively outperformed the benchmark. Sectorally, consumption, energy, realty outshone while financial, pharma took a breather. The index witnessed a gap up opening (17698-17797) during the truncated week and subsequently surpassed our target of 17900 on expected lines. However, profit booking from the psychological mark of 18000 mark led index to pare initial gains. As a result, weekly price action formed a Doji like candle with long upper shadow, highlighting breather after recent sharp up move.
Nifty 50 technical outlook
This expiry week, we expect Nifty to consolidate near the psychological mark of 18000-17500 range after strong rally of >13% over 5 weeks led prices to overbought trajectory (currently weekly stochastic oscillator is placed at 93). In the process, strong support is placed at 17400. Thus, dip from hereon should not be construed as negative. Instead, healthy retracement should be capitalized to accumulate quality stocks to ride the next leg of up move towards CY22 highs of 18350 in the coming month. Our constructive stance is anchored on following observations:
A) The index has resolved above long term trend line resistance in place since October highs, signalling resumption of primary uptrend.
B) The Nifty index has registered a bullish golden crossover (50-day EMA crossing 200-day EMA) at 17660 indicating structural bullish development from a medium term perspective. Since 2009, in 8 out of 10 such instances, Nifty has generated average 11% return in subsequent 3-4 months
C) Percentage of stocks (Nifty500) rising above their long term 200-day moving average has seen sequential improvement. From June low reading of 14%, current reading has jumped to 52% indicating broad based nature of rally
D) Strength in Indian equities is well supported by strong correlation with Developed market indices. S&P500 is at the cusp of breakout from falling channel following similar breakout in Nasdaq index and broader Russell 2000 index, thus signalling end of corrective phase
Sectorally, we expect BFSI, IT, Auto, Consumption and Capital goods to lead. Our preferred Large caps are State Bank of India (SBI), Kotak Mahindra Bank, HDFC, Infosys, Bharti Airtel, L&T, Titan Company while in midcaps we like Cyient, Bank of Baroda, Mahindra CIE, Action Construction, Bajaj Electrical, Tata Communications, Phoenix Ltd, TCI Express, Thermax, Zee Entertainment.
The Nifty midcap index has registered a strong breakout from falling channel encompassing past eight-month corrective phase signalling resumption of uptrend while Nifty small cap index is at the cusp of breakout and expected to follow midcap peers.
Structurally, prolongation of rallies underpinned by improving market breadth makes us confident to retain support base at 17400 as it is 38.2% retracement of July-August rally (16438-17992)
Bank Nifty Outlook
The Bank Nifty traded with positive bias for most part of the week and formed an intra-week high of 39759. However, profit booking on Friday’s session saw the index giving up its weekly gains to close on a flat note at 38986 levels down marginally by 0.2%. The weekly price action formed a small bear candle with a long upper shadow signaling breather after the recent sharp rally around the psychological mark of 40000
This expiry week, we expect the index to consolidate in the broad range of 38000-40000 after a strong rally of 14 % in just five weeks which has led to overbought condition in the weekly stochastic oscillator (currently placed at a reading of 93). We expect buying demand to emerge around the support area of 38000 hence use dips as an incremental buying opportunity.
We believe retracement of the recent up move from here on would make the market healthy and provides incremental buying opportunity
Bank Nifty has relatively outperformed the benchmark index in the last few quarters as can be seen in the Bank Nifty/Nifty ratio chart. It continues to remain in rising trend forming higher high-low and is seen sustaining above the recent falling supply breakout area joining highs since January 2021 highlighting strength and continuation of the outperformance
The index has immediate support around 38000 levels as it is the confluence of the 20 days EMA (currently placed at 37962) and the 50% retracement of the last four weeks up move (36248-39759).
(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 17/06/2022 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.