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Nifty to break out above falling channel placed at 15800…

Technical Outlook

• The index started the session on a positive note and gradually inched upward as the week progressed. In the process the index managed to hold last week’s low of 15183. The weekly price action formed a bull candle confined within last week’s sizable bear candle, highlighting abating downward momentum

• Going ahead, we expect the Nifty to eventually resolve past falling channel (confining price action since early June) is placed at 15800 and gradually head towards 16200 levels in coming weeks as it is 61.8% retracement of June decline (16794-15183) coincided with upper band of negative gap recorded on June 13 (16201-15878). On the downside, past two weeks identical low of 15200 would act as immediate support for the Nifty. In the process, we expect volatility to remain high owing to monthly expiry week. Thus, any dip towards 15400 should be used as buying opportunity.

• Our constructive bias is further corroborated by following evidences: a) the sentiment indicators are approaching their bearish extremes. Historically, reading of percentage of stock above 200 DMA below 15 signifies extreme pessimism in the markets that eventually leads to a technical pullback in subsequent weeks. Currently index recorded bearish extreme of 12 (which is lowest since March 2020) suggesting a strong possibility of a technical pullback in following weeks b) Brent oil prices have breached weekly rising trend line indicating loss of momentum and we expect upsides to be capped in 125-130 zone. Further decline in crude oil will provide impetus for extended pullback

• Amongst sectors preferences, IT, BFSI are key sectors with favourable risk/reward, while Auto and Capital goods expected to outperform

• We prefer SBI, HDFC, Kotak Bank, TCS, Maruti Suzuki, ITC, Titan in large caps while in midcaps we like KPIT Technologies, Federal Bank, AIA Engineering, NRB Bearings, Ashok Leyland, Automotive Axles, Bharat Electronics, Havells, Trent, Indian Hotel

• On the broader market front, in three instances over the past decade, intermediate correction in the Nifty Midcap, Small cap indices have been to the tune of 28% and 40%, respectively. At present, both indices have corrected 25% and 34%, respectively. Therefore, any further correction is likely to be short lived amid oversold territory and would set the stage for a technical pullback in coming weeks

• In the coming session, index is likely to witness gap up opening tracking firm global cues. We expect, index to trade with a positive bias while maintaining higher high-low formation. Hence, use intraday dip towards 15780-15812 for creating long position for the target of 15897

NSE Nifty Daily Candlestick Chart

Nifty Bank: 32845

Technical Outlook

• The weekly price action formed a Bull candle with lower shadow as supportive efforts emerged near last week’s and March 2022 identical lows around 32300 levels

• Going ahead, we expect Banking index to gradually resolve above past two week’s high of around 33700 levels and gradually head towards 34500 levels in coming weeks which is higher band of bearish gap area (34483 ) and 61 . 8 % retracement of preceding three week decline (36083 -32290 )

• In coming expiry week, volatility is likely to remain elevated wherein buying demand is expected to emerge around 32500 levels . Hence any dips in coming week towards 32800 -32500 may be used as buying opportunity

• The index has key immediate support at past two week’s identical lows and March 2022 lows placed in the range of 32100 -32300 .

• Amongst momentum oscillators, weekly RSI has formed a positive divergence with last week reading of 38 against May 2022 reading of 37 while price made new low . Such divergence is indicating receding downward momentum and likely to trigger further technical pullback in coming weeks

In the coming session, index is likely to open gap up amid firm global cues . We expect the index to trade with positive bias while maintaining higher high -low . Hence after a positive opening use intraday dips towards 33800 -33880 for creating long position for the target of 34130 , maintain a stoploss at 33690

Nifty Bank Index – Weekly Candlestick Chart

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