By Dharmesh Shah
Equity benchmarks snapped four weeks winning streak and concluded volatile week on a subdued note. The Nifty dropped 3.5% to end the week at 17617. Sectorally, all major indices ended in red weighed by IT, pharma
Nifty Technical Outlook
NSE Nifty 50 index underwent profit booking after a four weeks rally that hauled daily stochastic oscillators in oversold territory (currently placed at 16). Key point to highlight is that, the fag end buying demand in Friday’s session resulted daily price action to form a doji candle carrying small bodied bull candle with shadows on either side, indicating supportive efforts emerged in the vicinity of key support zone of 17400
Going ahead, we do not expect the Nifty to breach the key support threshold of 17400 levels followed by meaningful bounce towards the psychological mark of 18000 levels. In the process, stock specific action would prevail amid earnings season.
Over the past 22 months we have observed that, post 10-12% correction, the subsequent major rallying segment has seen intermediate retracement to the tune of 38.2%-50% of respective rally while sustaining above 100 days EMA. Hence in the current scenario, we expect the index to maintain the same rhythm and buying demand to emerge around 17400 as its confluence of 50% retracement of past one-month rally (16410-18350) coincided with 100 days EMA. Therefore, focus should be on accumulating quality stocks to ride next leg of up move
We expect themes like PSU, Auto, BFSI, Metal, Infra & Realty, unlock beneficiaries to remain in focus while pullbacks in FMCG and Pharma to be short lived
In large caps we like Reliance Industries Ltd (RIL), SBI (State Bank of India), Bajaj Finance, Tata Motors, Hindalco, Larsen & Toubro (L&T), United Spirits, DLF while in Midcaps we prefer Trent, Apollo Hospital, KNR Construction, Tata Power, Brigade Enterprise, Canara Bank, Suprajit Engineering, Bharat Electronics, Indian Hotels.
In tandem with benchmark the broader market indices underwent profit booking. We believe, ongoing breather would make broader market healthy and gradually help them to relatively outperform in coming weeks
Structurally, the formation of higher peak and trough on the monthly chart signifies broader positive structure is intact. The secondary correction is part of the secular bull market that paves the way for the next leg of rally. In current scenario, we expect ongoing corrective move to find its feet around 17400 as it is confluence of:
a) 50% retracement of December-January rally (16410-18350)
b) The 100 days EMA is placed at 17362
Bank Nifty Outlook
The Bank Nifty snapped three week winning streak as profit booking emerged after strong rally and ahead of key Fed meeting and monthly expiry week. The private and PSU banking indices corrected 2% each during the week. The Bank Nifty closed the session at 37574.30, down 2% for the week
The weekly price action formed a bear candle with shadows on either side indicating profit booking around 38850 levels as past three weeks’ 14% gains pushed the prices in overbought trajectory on daily chart (stochastics value above 90 at beginning of the week)
Going forward, overall price structure continues to remain positive and last week’s profit booking should not be construed negative rather be viewed as healthy retracement of preceding three week 14% rally. (34018-38851). Banking index relatively outperformed Nifty last week and the breakout of relative performance ratio of Bank Nifty/Nifty has already given a breakout from falling trend line indicating relative outperformance of the sector going ahead
We do not expect Bank Nifty to breach the key support zone of 37000-37200 and meaningful bounce back to materialize towards past two week’s highs of 38850. Therefore, one should use current decline to accumulate quality large and midcap banking stocks ahead of earnings season and key Fed meeting in upcoming truncated week
In current context strong support exist around 37000-37200 which is confluence of
a) 38.2% retracement of preceding four-week rally (34018-38851) and
b) presence of 50-day EMA which has acted as key support for Bank nifty during major rallies over past 22 months
(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 21/01/2022 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.