By Dharmesh Shah
Equity benchmarks kick started the CY22 on buoyant note amid firm global cues. The Nifty ended the previous week at 17812, up 2.6%. The Nifty midcap, small cap indices performed in tandem with the benchmark by gaining 2%, each. Sectorally, financials, auto, metal remained at forefront while pharma, IT took breather ahead of result seasons
Nifty Technical Outlook
In line with our view, the Nifty 50 index continued to march northward and surpassed our target of 17600. As a result, weekly price action formed a bull candle carrying higher high-low, signifying continuance of upward momentum.
Going ahead, we expect the Nifty to ensure ongoing up move and head towards 18200 in coming weeks. Our constructive thesis on the market is based on following observations:
a) The Nifty and Bank Nifty exhibited follow through strength after recording falling channel breakout. Thereby confirming conclusion of corrective phase
b) Since June 2020, on multiple occasions elevated buying demand emerged from 5 months’ average that paved the way to challenge life highs in subsequent months. In current scenario as well index rebounded from 5 months’ average. Thereby offering fresh entry opportunity from medium term perspective
c) The across sector participation along with improving market breadth augurs well for longevity of the bull trend
For the coming week, downside remains cushioned around strong support of 17500 levels. Thereby any cool off from hereon should be capitalized to accumulate quality stocks to ride next leg of up move towards 18200 as it is confluence of:
a) 80% retracement of entire decline since October 2021 (18604-16410) is placed at 18165
b) November 2021 high is placed at 18210
We expect IT, BFSI, auto sectors to outperform, while Metal & PSU provide favourable risk-reward
In large caps we like Reliance Industries Ltd (RIL), TCS (Tata Consultancy Services), State Bank of India (SBI), Bajaj Finance, HDFC Life, Hindalco, Maruti Suzuki India, DLF, Ambuja Cement while in midcaps we prefer Federal Bank, Canara Bank, Orient Cement, Jamna Auto, Vardhman Special Steels, LT Technology Services, Aditya Birla Fashion and Retail, Vinati Organics, Mahindra Logistic, SKF India
The broader market indices are sustaining above three months falling channel breakout area, indicating robust price structure. Meanwhile, improving market breadth augurs well for durability of current up move as 60% of stocks of Nifty 500 are sustaining above 50 day EMA compared to mid-December reading of 49%
Structurally, the formation of higher high-low on the weekly chart signifies positive bias is intact, that makes us confident to revise support base in the range of 17400-17500 as it is confluence of:
a) 61.8% retracement of current up move (17146-17944)
b) current week’s low is placed at17383
Bank Nifty Outlook
The Bank Nifty witnessed a strong up move and closed the previous week higher by more than 6%, the highest weekly percentage gains since May 2021. The weekly price action formed a sizable bull candle with a higher high-low and a firm close above the falling channel containing the last two months’ price decline signaling rejuvenation of upward momentum.
Going ahead, we expect the index to maintain positive bias and gradually extend the current up move towards 38800 levels in the coming weeks as it is the 61.8% retracement of the entire decline (41829-34018)
In the process, bouts of volatility cannot be ruled out. However, any dip from hereon should not be construed as negative instead capitalise it as incremental buying opportunity as we expect strong buying demand exists around 36500 levels
The index has support around 36500 levels being the confluence 38.2% retracement of the current up move (34233-38134) and the rising 100 days EMA currently placed at 36700 levels
Among the oscillators the weekly stochastic is in uptrend and is seen rebounding taking support at its three periods average thus validating positive bias in the index in coming weeks.
(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.