By Dharmesh Shah
NSE Nifty 50 index witnessed elevated volatility during last week amid escalated geopolitical issues and spike in crude oil prices. In the process, Nifty managed to hold the key support threshold of 16800 for the fourth time in the last two months while absorbing a host of negative news, highlighting inherent strength. As a result, the weekly price action formed a small bull candle with shadows on either side, indicating rise in volatility while sustaining above key support base of 16800
Key point to highlight is that, in the ongoing corrective move (since mid-January 2022) the index has failed to sustain above previous week’s high. Therefore, in this expiry week, a decisive close above last week’s high (17490) along with cool off in India VIX (which gauge the market sentiment) would be the key monitorable that would set the stage for a gradual move towards 17800 in coming weeks. Else, prolonged consolidation in the broader range of 17600-16800 range. The 17800 would act as immediate resistance as it is confluence of:
a) 61.8% retracement of mid-January decline (18350-16836), is placed at 17772
b) February high is placed at 17794
Structurally, over the past five weeks’ index has retraced 80% of the preceding four weeks rally (16410-18350). Slower pace of retracement signifies that the broader bullish structure is still intact. Thus, we believe, extended breather from hereon should not be construed as negative, instead dips should be capitalised to accumulate quality large caps as we do not expect Nifty to breach key support of 16800, as it corroborates with:
a) 80% retracement of December-January rally (16410-18350), placed at 16798
b) Panic low recorded in January 2022 is placed at 16836
c) 200 days EMA is placed at 16712
Our preferred sectors are BFSI, Capital goods, Metals and Auto. In large caps we like Axis Bank, SBI (State Bank of India), Bajaj Finance, Reliance Industries Ltd (RIL), Infosys, Asian Paints, Titan Company, Tata Steel, Tata Motors while in Midcaps we prefer Siemens, Cummins India, Bharat Dynamics, Voltas, KNR Constructions, Inox Leisure, Trent, Taj GVK.
The broader market indices relatively underperformed the benchmark in the week gone by which hauled Nifty midcap and small cap index in the vicinity of 200 days EMA. We believe extended breather from hereon would make broader markets healthy wherein stock specific action would prevail
Bank Nifty Outlook
Bank Nifty index has been trading in a broad range of 39400 and 36500 over past five weeks now within which it has failed to generate faster retracement on either sides indicating extended consolidation over next few sessions and higher base formation around 36500 levels.
Structurally ongoing consolidation would help index workout of overbought trajectory and set the stage for next leg of up move towards 39400 levels. Therefore, any dip should not be construed as negative rather would present an incremental buying opportunity. The index has support around 36500 levels being the confluence of the following technical observations
a) 200 days EMA currently placed at 36190
b) 50% retracement of the previous major up move (34018-39424) is placed around 36700 levels
c) the lower band of the last five weeks’ range is also placed around 36500 levels
Among the oscillators the weekly stochastic is seen cooling off from the overbought territory and is currently placed at a reading of 65 signaling continuation of the current consolidation this week.
(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 21/01/2022 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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