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Nifty:17536

Technical Outlook

* Despite Thursday's subdued opening index staged a strong pullback as supportive efforts emerged from Wednesday's low (17350). As a result, daily price action formed a bull candle, indicating consolidation amid positive bias

* The lack of faster retracement of the last decline signifies weak pullback that makes us believe retest of recent low of 17216 can not be ruled out. Over past 3 sessions index has retraced 38% of preceding four sessions decline (18210-17216). Since April 2020, there have been three major corrections (shown in adjoining chart) which measured average 9%. Buying in each of three corrections provided handsome returns for investors as index eventually scaled back to new highs. In current scenario, as Nifty has already corrected 7.5% from life highs of 18600 amid oversold placement of weekly stochastic (currently placed at 21), we expect markets to maintain this rhythm of arresting corrections within 9%. Thus, we expect Nifty to find strong buying demand in 16900-17100 zone as it is confluence of:

* A) Since May 2020, during all 3 corrections index retraced 38% of preceding rally. 38% retracement of current rally is placed at 16900

* B) 9% correction from life high of 18600 will mature at 16930

* Meanwhile, 50 days EMA would act as a immediate resistance which is placed around 17700

* The broader market indices are showing resilience by sustaining above their 50 days EMA coincided with October lows. Both midcap and small cap indices have maintained rhythm of corrections to the tune of 10% over past 20 months. With 9% correction already in place, we believe this rhythm will be maintained and both indices will resume their bull trend post a decent higher base formation. Therefore, ongoing correction should be used as an incremental buying opportunity to ride structural uptrend.

In the coming session, index is likely to witness gap down opening tracking weak Asian cues. The lack of faster retracement signifies weak pullback of recent decline. Hence after a gap down opening use intraday pullback towards 17465-17495 for creating short position for target of 17378.

NSE Nifty Weekly Candlestick Chart

Nifty Bank: 37364

Technical Outlook

* The daily price action formed a Doji candle signaling consolidation as the index continue to trade within Monday’s price range in the last three trading session signaling consolidation after the recent sharp decline

* Going ahead, index holding above Monday’s panic low (36647 ) will lead to a consolidation in the broad range of 36600 -38200 with stock specific activity as seen in the last three trading sessions . However, failure to hold above the Monday’s panic low will lead to extension of the decline towards the major support area of 36000 -35700 levels being the confluence of the rising 200 days SMA and the 50 % retracement of the entire six months up move (30405 -41829 ) .

* Key observation is that the index since April 2020 has not corrected for more than one month barring one instance . In the current scenario with one month of decline already behind us, we expect the index to maintain the rhythm and form a higher base in the coming weeks

* The overall structure in the index remain positive, hence we believe the current breather should not be seen as negative instead it should be capitalized to accumulate quality banking stocks for the next leg of up move . Buying on dips strategy has worked well on multiple occasions in the last 18 months

* On the higher side last Monday’s high 38200 which also coincides with the 50 days EMA (currently placed at 38215 ) is likely to act as immediate hurdle for the index

* The daily stochastic is seen rebounding from the oversold territory with a reading of 36 signaling supportive effort is likely at lower levels in the coming sessions

* In the coming session, index is likely to open gap down amid weak Asian cues . Index in the last three sessions witnessed a shallow retracement after recent decline signaling corrective bias . Hence after a negative opening use intraday pullback towards 37260 -37340 for creating short position for the target of 37030 , maintain a stoploss of 37460.

Nifty Bank Index – Daily Candlestick Chart

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