By Dharmesh Shah
Equity benchmarks snapped two weeks winning streak and concluded the week on a subdued note amid global volatility. Nifty ended the week at 16985, down 3%. Meanwhile, the broader market relatively underperformed the benchmark as Nifty midcap, small-cap skidded over 4%, each. Barring IT, all other indices ended in red weighed by FMCG, financials, realty
The Nifty started the week on a positive note. However, profit-booking from the 50 days EMA (placed around 17500) dragged the index lower. As a result, weekly price action formed a bear candle, indicating prolonged consolidation over the third consecutive week in the 17500-16800 range.
Since November low of 16782 Nifty has formed a higher low during last week at 80% retracement. At the current juncture as well, over past five sessions index has retraced 80% of the preceding four sessions up move (16892-17640). The slower pace of retracement signifies inherent strength that makes us believe the index would form a higher bottom and gradually head towards a higher band of consolidation placed at 17500.
The index has approached the maturity of price-time wise correction. Price wise, index has maintained the rhythm of not correcting for more than 11% since May 2020. Time wise, the index has arrested secondary correction within nine weeks. Thus, any dips from here on should be capitalized as incremental buying opportunity
Sectorally, Capital goods, IT expected to continue outperformance while Metal, Infra are poised with favourable risk-reward setup
In large cap space we like TCS, L&T Infotech, Reliance Industries Ltd (RIL), Titan Company, L&T, Hindalco, Tata Motors while in Mid cap space we prefer Tata Communications, Kajaria Ceramics, Mphasis, RHIM, Sanghvi Movers, TCI, Philips carbon
The broader market indices have taken a breather after showing relative outperformance over past two weeks. Currently, both indices are forming a higher base after retracing 61.8% of their recent up move, indicating healthy consolidation. We expect Nifty midcap, small cap indices to extend their ongoing consolidation amid stock specific action that would set the stage for next leg of up move.
Structurally, over past three weeks Nifty has been forming a higher base above 100 days EMA (which has offered incremental buying opportunity on couple of occasions since June 2020). Thus, we expect Nifty to hold the key support threshold of 16800 as it is confluence of:
a) since May 2020, index has not corrected for more than 10%. In current scenario, 10% correction from life high of 18600 will mature at 16740
b) In all 3 corrections since May 2020, index retraced 38% of preceding rally. 38% retracement of current rally is placed at 16900
c) November low of 16782 would now act as immediate support
Bank Nifty Outlook:
The Bank Nifty traded with corrective bias and gave up its entire last week’s gains to close lower by ~4%. The weekly price action formed a bear candle signaling continuation of the overall consolidation for the third consecutive week around the 200 days EMA (currently placed at 35410)
Going ahead, we expect buying demand to emerge around the long term 200 days EMA and gradually head towards the upper band of the consolidation placed around 37500 levels
Lack of faster retracement in either direction in the last three weeks signals continuation of the current healthy consolidation in the coming week
Structurally, index has maintained rhythm over past 20 months of not correcting for more than 9 weeks’ time wise. With 8 weeks of correction behind us, we expect ongoing corrective phase to mature in coming week as Index has approached oversold territory
Nifty Bank has immediate support at 35300 levels being the confluence of the 200 days EMA and the 80% retracement of the August-October 2021 rally (34115-41829)
Among the oscillators the weekly stochastic is seen rebounding from the oversold territory thus supports the pullback in the index in the coming weeks.
(Dharmesh Shah is the Head Technical at ICICI Securities. Views expressed are the author’s own. 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 10/12/2021 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.)