Nifty support at 17500, Bank Nifty to trade in 38400-40500 range; Ashok Leyland, SBI, Tata Steel top stocks

Updated: November 01, 2021 10:16 AM

Ee expect buying demand to emerge around the key support threshold of 17500 in the upcoming truncated week

The broader market indices extended breather after retracing back to 50 days EMA.

By Dharmesh Shah

Equity benchmarks extended profit booking over a second consecutive session and concluded the previous week on a subdued note. The Nifty skidded 2.4% to settle for the week at 17672. The broader markets performed in tandem with the benchmark and settled 2% lower. Sectorally, pharma, PSU Banks relatively outperformed while financials, energy, PSU underwent profit-booking

Nifty Technical Outlook

– The Nifty started the week on a flat note and staged a pullback which remained short lived. The selling pressure accelerated on the breach of the psychological mark of 18000. As a result, weekly price action formed a bear candle carrying lower high-low after a 12 weeks rally, indicating a pause in upward momentum.
– Going ahead, we expect buying demand to emerge around the key support threshold of 17500 in the upcoming truncated week and undergo a higher base formation that would make market healthy after a 20% rally seen over the past three months. Such intermediate episodes of breather make larger sutural up trend healthy as seen in previous bull markets. Thereby, the ongoing corrective phase should not be construed as negative, instead dips should be capitalized to build a quality portfolio over the medium term. Key point to highlight since May 2020 is that, time wise index has not corrected for more than 2-3 consecutive weeks. In the current scenario, the index has already corrected over the past two weeks. We expect, index to maintain the rhythm by arresting ongoing corrections in a couple of weeks. Meanwhile, last week’s high of 18200 would act as immediate resistance
– The broader market indices extended breather after retracing back to 50 days EMA. We believe, Nifty midcap and small cap indices are approaching price/time maturity of the corrective phase. Since May 2020, both indices have not corrected for more than 9-10% and arrested intermediate correction within 3 weeks. We expect both indices to maintain the same rhythm and form a higher base in the vicinity of 50 days EMA. Thereby, focus should be on accumulating quality midcaps
– Amongst sectors, BFSI, Realty and Infra are expected to outperform while IT, Auto and Metal provide favourable risk-reward setup after recent correction
– In large caps we prefer State Bank of India (SBI), Bajaj Finance, Tata Motors, Tata Steel, United Spirits, L&T. while in Mid Caps we like ABB India, L&T Infotech, Ashok Leyland, Prestige Estates, Jindal Stainless, Bank of Baroda, ABFRL, Gateway Distriparks, Gokaldas Exports
– Structurally, the formation of higher peak and trough on the larger degree chart signifies robust price structure that makes us believe that ongoing breather would find its feet around 17500 as it is confluence of:
a) 50 days EMA is placed at 17550
b) October 2021 low is placed at 17452

Bank Nifty Outlook

– The weekly price action formed a bearish engulfing candle indicating profit booking at higher levels and pause in upward momentum.
– Going ahead, we expect the index to hold above the Friday’s panic low (38426) on a closing basis and enter into a consolidation in the broad range 38400-40500 in the coming weeks thus forming a higher base for the next leg of up move

– We believe the current breather should not be seen as negative instead it should be used to accumulate quality banking stocks
– The short term support base for the index is placed at 38000-38400 levels being the confluence of:
a) 80% retracement of the recent up move (36876-41829)
b) the upper band of the recent seven months range breakout area
c) the rising 10 weeks EMA is also placed at 38260 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

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