Below is the Views On We expect the index to continue with the current consolidation in the coming week in a range of 11700-12000 By Dharmesh Shah, Head – Technical, ICICI direct
Equity benchmarks on expected lines witnessed breather as it traded in a range and closed almost flattish for a second consecutive week. Nifty closed the week at 11895 levels. Broader markets for a second week in a row consolidated in a range as the Nifty Midcap index closed marginally higher by 0.5% whereas the Nifty small cap index closed lower by 1%
The weekly price action formed a high wave candle carrying a lower high-low, indicating extended breather amid stock specific action. We expect the index to continue with the current consolidation in the coming week in a range of 11700-12000 which will make markets healthy by cooling off the overbought situation of the weekly stochastic oscillator (currently at 87) formed after five week’s 940 points sharp rally.
We believe the current breather should not be suspected as negative but should be capitalised on as an incremental buying opportunity in quality cyclical stock as going ahead we do not foresee index to breach the key support threshold of 11700-11600.
Nifty has not corrected for more than two consecutive weeks since August 2019. In the current scenario, as the index has been correcting over the week, we expect temporary breather to find its feet around 11700-11600 levels as it is confluence of:
* as per the change of polarity concept, past three month’s resistance of 11700 would now act as immediate support
* 38.2% retracement of current up move (11090–12034), at 11674.
Over the past eight sessions, Nifty Midcap index retraced 38.2% of preceding six session’s up move. Slower pace of retracement signifies healthy consolidation that aided daily stochastic oscillator to cool off the overbought situation (around 48). Going ahead, we expect Nifty midcap, small cap to relatively outperform benchmarks, as over past two months we have seen significant improvement in market breadth of Nifty 500 universe, as discussed below:
* during entire corrective phase off June high 12103 to August low of 10637, average number of stocks hitting new 52 week high was six per day, which has significantly improved to 17 per day in the past seven weeks, indicating rejuvenated buying demand
* percentage of stocks above 200 days SMA has improved (off September low 10670) from 28% to 50%
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