Credit Source
By Dharmesh Shah
The Nifty started the last week on a positive note and broadly traded in 18100-17800 range throughout the week. In the process, in four out of five sessions Nifty closed above the psychological mark of 18000 despite global volatility and managed to hold a 50 days EMA.
-The weekly price action formed a bull candle carrying higher high-low, indicating extended pullback. Meanwhile, Nifty midcap and small-cap indices relatively outperformed the benchmark
– The formation of higher peaks and trough on the monthly chart signifies broader positive structure is intact which makes us believe, the Nifty 50 index would eventually resolve higher and retest the all-time high of 18600 by December 2021. A key point to highlight over the past 18 months is that, price-wise Nifty has maintained the rhythm of not correcting for more than 7-9% while sustaining above 50 days EMA and time-wise intermediate corrections have got arrested within four weeks. In current scenario, as index has already corrected 5.5% over past three weeks, we expect index to hold 17500 and eventually challenge the life highs.
– This week, we expect the Nifty 50 index to consolidate in the 18200-17700 range which would offer incremental buying opportunities as the index approaches price/time wise maturity of correction. Hence, dips should be capitalised on to accumulate quality stocks
– The broader market indices have formed a higher high-low on the weekly chart after forming a base above 50 days EMA that has been held since June 2020, highlighting robust price structure. We expect Nifty midcap and small cap indices to extend their consolidation amid lack of faster retracement on either sides and witness stock specific performances.
– Sectorally, Capital goods, Telecom, Infra are outperformers while BFSI and IT provide favourable risk-reward setups
In large caps we prefer Reliance Industries Ltd (RIL), Housing Development Finance Corporation, State Bank of India (SBI), Bharti Airtel, L&T, Tata Motors, HDFC Life, Tech Mahindra, DLF, while in Midcaps we like ABB India, L&T Infotech, Bharat Electronics Ltd (BEL), Bata India, TCNS Brands, Carborundum Universal, Gateway Distriparks, Gujarat Fluorochem, Phoenix Mills, Polycab, Mahindra Holidays, Pricol.
– Structurally, the higher base formation above 50 days EMA signifies robust price structure that makes us believe that ongoing breather would find its feet around 17500-17600 range as it is confluence of:
a) 50 days EMA is placed at 17650
b) October 2021 low is placed at 17452
Nifty Chart
Bank Nifty Outlook
– The Bank Nifty traded with corrective bias for the third consecutive week and closed lower by 2%. The weekly price action formed a bear candle with a small lower shadow as it rebounded taking support around the vicinity of the 50 days EMA placed around 38390 levels
– Key observation is that the index since April 2020 has not corrected for more than four weeks barring one instance while 50 days EMA has acted as strong support during each of the corrective phase. In the current scenario with three weeks of decline already behind us, we expect the index to maintain the rhythm and form a higher base around 50 days EMA (currently placed around 38390)
– In this truncated week, we expect the Bank Nifty index to continue with its healthy consolidation in the broad range of 38200-40000.
– We believe the current breather should not be seen as negative instead it should be capitalized to accumulate quality banking stocks for the next leg of up move. Buying on dips strategy has worked well on multiple occasions in the last 18 months.
– The short term support base for the index is placed at 38400-38200 levels being the confluence of:
a) 61.8% retracement of the recent up move (36876-41829)
b) the upper band of the recent seven months range breakout area
c) the rising 50 days EMA is also placed at 38390 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
