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Nifty to extend rally above 17200, else consolidation…

Technical Outlook

* The Nifty started the week with a negative gap (16985-16824) and breached the intermediate support of 16800, contrary to our expectation. However, supportive efforts from 50% retracement of April-October rally (14151-18604), helped the index to recover intraweek losses and it managed to hold the key support of 16800 on a weekly closing basis. The weekly price action resembles a hammer like candle carrying a small real body with long lower shadow, indicating a pause in downward momentum

* Going ahead, a decisive close above 17200 backed by improvement in market breadth would lead to extension of pullback towards 17600. Failure to do so would lead to prolonged consolidation amid stock specific action in broader range of 17200-16600 that would set the stage for next leg of up move. Key point to highlight is the index has approached the maturity of price-time wise correction. Price wise, the index has maintained the rhythm of not correcting for more than 11% since May 2020. Time wise, the index has arrested secondary correction within nine weeks. In the current scenario, the index has corrected 11.8% over the past nine weeks. Thus, any dip from here on should be capitalised on to accumulate quality stocks in staggered manner. We believe 17200 would be the key level to watch for the coming week as it is confluence of:

* a) 61.8% retracement of last leg of decline (17640-16410), at 17170

* b) 100 days EMA is placed at 17150

* The Nifty midcap, small cap indices are forming a higher base above 100 days EMA which has been majorly held since June 2020. Key point to highlight is that the broader market indices are undergoing slower pace of retracement as over past ten weeks both indices retraced 61.8% of preceding eight week’s rally. Slower pace of retracement signifies healthy retracement that would set the stage for next leg of up move

* Sectorally, Capital goods, IT expected to continue outperformance while Auto, PSU are poised with favourable risk-reward setup

* In large cap space we like TCS, L&T, Reliance, Tata Motors while in Mid cap space we prefer FSL, Zensar Technologies, Gateway Distriparks, Tata Communications, Philips Carbon, Century textiles, Brigade, Radico Khaitan

* We believe the ongoing corrective phase would find its feet around 16600 as it is 80% retracement of current pullback (16410-17156) placed at 16560

In the coming session, the index is likely to open on a flat note tracking muted global cues. We expect elevated buying demand to emerge from Friday’s low around 16910. Hence use dip towards 16890-16920 for creating long position for target of 17009.

NSE Nifty Weekly Candlestick Chart

Nifty Bank: 34857

Technical Outlook

* The weekly price action formed a high wave candle with long lower shadow highlighting gradual pullback after Monday’s sharp decline . The index contrary to our expectation closed below the 200 days EMA (currently placed at 35436 )

* Index need to start forming higher high -low in the daily chart on a sustained basis and close above Monday’s gap down area of 35500 for any meaningful technical pullback to materialize towards 37200 levels in the coming weeks . Failure to do so will lead to a range bound trade in the broad range of 34000 -35500 as seen in the last four sessions

* Index after the recent sharp decline has approached oversold territory and is placed around the price/time wise maturity with previous three decline in the last 20 months . Price wise previous three major decline was around 20 % each and time wise maximum corrective period is 9 weeks . In the current scenario we have already corrected by 19 % over past nine weeks and are approaching price/time maturity, offering favourable risk -reward over medium term

* On the higher side immediate resistance is placed at 35500 levels being the confluence of the 200 days EMA (placed at 35440 ) and the upper band of the Monday’s gap down area

* Among the oscillators the weekly stochastic is rebounding from the oversold territory and is placed at a reading of 23

* In the coming session, index is likely to open on a flat to negative note amid mixed global cues . Volatility is likely to remain high, we expect buying demand to emerge around the 61 . 8 % retracement of the last week pullback (34123 - 35550 ) around 34550 levels . Hence use intraday dips towards 34500 -34570 for creating long position for the target of 34830 , maintain a stoploss at 34370.

Nifty Bank Index – Weekly Candlestick Chart

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