The ongoing healthy consolidation in Nifty 50 would help index to cool off the overbought conditions and form a higher base.
By Dharmesh Shah
Equity benchmarks snapped four weeks winning streak amid subdued global cues. Nifty concluded the week at 15683, down 0.7%. Broader market relatively underperformed as Nifty midcap and small cap lost 3% and 2%, respectively. Sectorally, barring FMCG, IT all other major indices ended in red weighed by Metal, Pharma, auto and PSE
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Nifty technical outlook
– The Nifty undergone profit booking after clocking a fresh all time high of 15901. The weekly price action formed a high wave candle, indicating breather amid elevated volatility. The major profit booking seen the midcap and small caps
– In the expiry week, we expect index to consolidate in the broader range of 15900-15400 amid stock specific action. The ongoing healthy consolidation would help index to cool off the overbought conditions and form a higher base. The broader structure remain bullish thereby we reiterate our positive stance of Nifty heading towards earmarked target of 16100. However, bouts of volatility from here on cannot be ruled out which would offers incremental buying opportunity in the range of 15300-15500. Our target of 16100 is based on following observations:
a) Price parity of post Budget rally (13597-15432), projected from April low of 14151, at 16055
b) Past two month’s range (15140-14150) breakout target at 16120
– On the sectoral front, we expect IT, FMCG to relatively outperform while BFSI, Auto and Capital Goods offer favourable risk-reward setup
– Our preferred large caps are Infosys, Reliance Industries Ltd (RIL), Hindustan Unilever Ltd (HUL), Ambuja Cements, Bajaj Finance, HDFC Life Insurance Company, Tata Motors while, in midcaps we like Mindtree, Nocil, CSB Bank, Caplin Point, Indo Count Industries, Rallies India, NRB Bearing.
– In tandem with benchmark, broader market indices underwent profit booking amid overbought conditions. Over past four weeks, Nifty midcap, small cap indices have rallied ~12% pulling weekly stochastic oscillator in overbought territory, indicating extended breather from here on cannot be ruled out
– Structurally, we believe extended breather from here on would get anchored around 15200. The Nifty has formed a strong higher base at 15200, which we do not expect to be breached. Thereby, traders should take advantage of dips to accumulate quality stocks. The key support of 15200 is based on 61.8% retracement of past four week’s rally (14885-15901), at 15274
Bank Nifty Outlook
– The index witnessed profit booking for a second consecutive week and closed lower by 1.4% amid soft global cues. The weekly price action formed a high wave candle, indicating breather amid elevated volatility after recent sharp up move
– In the monthly expiry week, we expect the index to consolidate in the broad range of 35500-34000 with stock specific action.
– The broader positive structure remain intact and we believe the current breather should be used as an incremental buying opportunity in quality banking stocks for up move towards our target of 36200 as it is the confluence of the 80% retracement of the entire last three months corrective decline (37708-30405) and the price parity with previous up move (30405-34287) as projected from the recent trough of 32115 signalling upside towards 36200 levels
– In a smaller time frame the index has witnessed a shallow retracement as it has already taken 13 sessions to retrace just 50% of its preceding 12 sessions up move (32115-35714). A shallow retracement highlights a robust price structure and a higher base formation
– The index on last Friday’s session rebounded from the crucial support area of 34000, which we expect to hold on a closing basis, as it is confluence of the following technical observations:
a. The 50% retracement of the previous up move (32115-35714) placed at 33900
b. The value of the rising demand line joining lows of April 2021 and May 2021 is placed around 34300
c. The recent breakout area and the April high (34287).
d. The rising 50 days EMA placed at 34150 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