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Below is the Views On We expect Nifty midcaps to outperform the benchmark in the coming weeks by Dr. Dharmesh Shah, Head – Technical, ICICI direct
Equity benchmarks gained for a second consecutive week and closed higher by more than 1%. Nifty formed a record high of 12158 during previous week, however it closed off the weekly high at 12056 levels. Broader markets outperformed the benchmark indices as the Nifty midcap and small cap index closed higher by 2% each
The weekly price action formed a bull candle with a small upper shadow signalling profit booking at record highs ahead of the Q2 GDP numbers scheduled to release post market hours on Friday. The index however maintained higher high and higher low and closed above the last three week’s consolidation range of (12030-11800) indicating strength and resumption of the primary up trend.
The structural improvement along with our bottom up approach towards the index makes us confident that the index will accelerate upward momentum towards our embarked target of 12400 in coming weeks as it is the confluence of the:
* 123.6% external retracement of last major decline (12103 to 10637)
* upward sloping resistance trend line (drawn adjoining subsequent highs off August 2018 of 11760–12103) is also placed at 12400
Key point to highlight is that the Nifty Midcap has resolved out of the long term falling trend line (drawn adjoining subsequent highs off 2018), at 17150, indicating conclusion of the long term corrective phase. Going ahead, we expect Nifty midcaps to outperform the benchmark in the coming weeks. The index has formed a higher base above 200 days SMA (16840) indicating inherent strength.
Structurally, the Nifty over the past 44 sessions has retraced its preceding 73 session’s decline (12103–10670). The faster retracement of a major falling segment confirms the larger degree structural uptrend and carries further bullish implications for the index from a medium term perspective.
Meanwhile, we do not foresee the index breaching the key support threshold of 11800. Therefore, a temporary breather from here on should be capitalised on to accumulate quality stocks. The key support of 11800 is based on the following technical observations:
* 38.2% retracement of (11090–12132), placed at 11734
* November’s low is placed at 11802
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