By Dharmesh Shah
Equity benchmarks extended losses over the second consecutive week tracking elevated global volatility triggered by concerns over financial stress in banks. Nifty closed the previous week at 17100 levels down 1.8%. The broader market performed in tandem with the benchmark as Nifty Midcap and Small cap indices lost 2% each. Sectorally, all major indices ended in red weighed down by IT, auto and financials.
The index started the week on a subdued note and drifted downward on the breach of intermediate support of 17200. The weekly price action formed a bear candle with a lower shadow, highlighting supportive efforts emerging in the vicinity of 16800 despite elevated global volatility.
The index has approached key support of 16800 amid oversold conditions (daily and weekly stochastic is placed at 19 and 25, respectively). Further, it has witnessed a follow-through to Thursday’s Doji-like candle at the key support of 16800, indicating abating downward momentum. In this eventful week, volatility would remain high wherein we expect the extended correction to get arrested around the key support zone of 16800 while sustainability above the immediate hurdle of 17200 would pave way for a meaningful pullback towards 17600 by the end of March 2023, as it is a confluence of 200 days EMA coincided with current week’s high. Thus, traders should refrain from creating aggressive short positions.
Following are the key points corroborating structural positive stance:
- Historically, over the past two decades, on all ten occasions when Nifty corrected for three consecutive months, in subsequent month index witnessed a positive return
- In the current context, we expect the index to maintain this rhythm as it has already retraced ~55% of Jun-Dec rally over past three months and gain gradually higher by the end of the month
- Empirically, episodes of such high volatility globally and domestically has been painful to deal with in short term but always resulted in a durable bottom formation over medium term once anxiety surrounding events settle down. Markets have a tendency to bottom out amid bad news and Investing in such times of high volatility has always been rewarding.
- Brent crude prices declined over 8% during the week and breached below key support of $75, for the first time since December 2021. Lower crude prices are expected to support the domestic currency and equities.
- India VIX reacted from its upper band of channel indicating cool off in volatility going ahead.
-On the sectoral front, BFSI, IT, Capital goods & Infra, Consumption and PSU are in focus.
-On the large caps front HDFC Bank, SBI, Tech Mahindra, Titan, Ultratech Cement, L&T, DLF
-The breach of key support of 17200 signifies extended correction wherein strong support is placed in the zone of 16800-16600 as it is a confluence of:
- price parity of December decline (18887-17774) projected from last week’s high of 18201 is placed at 17140.
- September 2022 low is placed at 16747.
- A 61.8% retracement of CY22 rally 15183-18887, placed at 16600.
The Nifty Bank index settled 2% lower for the week amid global volatility. Index closed in the red on three out of five sessions weighed down by PSU banks (down 4%) while the Nifty PVT banks index closed 2% lower. The Bank Nifty ended the week at 39598, down 2.1%.
The banking index started the week on a subdued note and then declined 2000 points midway through the week before staging a technical pullback to end the week off lows (38613) thus resulting in a bear candle with a lower shadow. The lower shadow signifies the emergence of supportive efforts around key support of 38600-38200 levels despite global volatility, as the index approached key support accompanied by oversold readings (daily stochastics of 12).
In this week, we expect the index to hold a key support zone of 38600-38200 amid high volatility surrounding the closely watched US Fed event and stage a gradual technical pullback towards 40300-40500 which is a confluence of last week’s high (40690) and 61.8% retracement of past two-week decline (41671-38613).
Structurally, the ongoing corrective phase has already consumed 14 weeks to retrace 80% gains of the preceding 10 weeks rally of October–December (37387-44151). A slower pace of retracement signifies the corrective nature of the current decline within the overall uptrend. The index has key support at 38200-38600 levels being the confluence of (a) a rising 52-week ema and (b) an 80% retracement of June-December 2022 up move (37387-44151).
(Dharmesh Shah is Head Technical at ICIC Securities. Views expressed are author’s own.)