The Nifty is approaching maturity of price/time wise correction, the shallow price correction along with prolonged time consolidation signifies strong base formation at 15500
By Dharmesh Shah
The broader market indices outperformed the benchmark last week by gaining over 1.2%, each and scaled to fresh all-time high while equity benchmarks hovered within a whisker of all-time highs as lacklustre movement prevailed over a second consecutive week. The index settled on a flat note as Nifty eased 0.2% to end the week at 15690. Sectorally, financials, metal, realty outperformed whereas losses in auto, IT, pharma capped gains
Nifty Technical Outlook
– The equity benchmark started the week on a positive note however failed to sustain above upper band of consolidation (15900) on the fourth occasion since June 2021. As a result, weekly price action formed a bear candle majorly confined within last week’s trading range (15915-15635), indicating extended breather. The lack of faster retracement on either side signifies prolonged consolidation (15900-15500) amid stock specific action.
– The Nifty is approaching maturity of price/time wise correction, the shallow price correction along with prolonged time consolidation signifies strong base formation at 15500. The ongoing volatility indicates that couple of weeks’ breather cannot be ruled out, however eventually we expect Nifty to resolve out of four-week consolidation of (15500-15900) and head towards our target of 16100 in coming weeks. Key point to highlight is that during ongoing consolidation index retraced its May rally by just 38%, indicating shallow retracement. Time-wise, the index has not corrected for more than three consecutive weeks in a row since April 2020. In the current scenario, the index has already corrected over the past two weeks. Thereby we expect it to maintain the same rhythm by arresting the ongoing corrective phase in coming weeks.
– The formation of subsequent higher lows during ongoing consolidation (15900-15500) exhibited buying demand at elevated support base. Therefore, dips should be capitalised as incremental buying opportunity as we enter the Q1FY22 earning season.
– We stay positive on IT, BFSI, Metals, Auto and Infra as key outperforming sectors going ahead
– Our preferred large caps are Infosys, Bajaj Finserv, Axis Bank, Tata Steel, Ambuja Cements and Maruti Suzuki while, in midcaps we like Indoco Remedies, L&T Infotech, Dhampur Sugar, Jindal Stainless, Just dial, Siyaram Silk Mills, Minda Industries, Godrej properties and NCC.
– The broader market indices relatively outperformed the benchmark as Nifty midcap and small cap scaled to fresh all-time high. We believe, the broader market indices have formed a higher base that has set the stage for next leg of up move. We expect broader market to endure its relative outperformance in coming weeks
– Structurally, we believe past five week’s consolidation helped index to form a higher base at 15600-15500 zone, which we do not expect to be breached as it is confluence of:
a. 61.8% retracement of past four week’s rally (15145-15915), at 15440
b. 10 weeks EMA placed at 15478
c. June 2021 low placed at 15450
Bank Nifty Outlook
– The Index started the week on a positive note but profit booking at the higher band of the last five weeks range (35800-34000) saw the index gave up most of its weekly gains and closed marginally higher by 0.8%. The weekly price action resulted in a small bull candle with a long upper shadow while maintaining higher high-lows indicating extended consolidation
– Going ahead, we maintain our positive stance; however, a couple of weeks’ breather cannot be ruled out. We advise to capitalize such breather as an incremental buying opportunity for up move towards 36200 levels in the coming weeks as it is the 80% retracement of the February – April 2021 decline (37708-30405)
– On a smaller period the index has witnessed a shallow retracement as it has retraced just 50% of its May rally (32115-35810) over past five weeks.
– Key observation is price action has been contracting over past few sessions suggesting that breakout from this consolidation is approaching. We expect index to breakout on the higher side given shallow retracement and robust price structure
– The formation of higher high-low in the weekly time frame gives us confident to revise the support base higher towards 34200-34500 being the confluence of the following technical observations:
a. The 80% retracement of the recent up move (33908-35811) placed at 34290 levels
b. The value of the rising demand line joining major lows since May 2020 is placed around 34550
c. The rising 50 days EMA is also placed at 34580 levels
(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