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Nifty

Technical Outlook

• The Nifty opened on a positive note despite muted global cues and then oscillated in a 17600-17780 range for the rest of the session before closing flat. The index, however maintained a higher low for fifth session in a row indicating elevated buying support during intra day declines. The Nifty has held above 21-day EMA (currently at 17480) and undergoing contraction of range in the past one week signalling an extended consolidation after sharp run up in August

• Going forward, we expect the Nifty to eventually resolve out of the contracting range and gradually head towards 18300 in September 2022 as it is the swing high of January 2022. Level of 16800 is expected to act as strong support. Therefore, we recommend using dips to construct a portfolio of quality companies in the ongoing consolidation phase. Meanwhile, midcaps and small caps are expected to continue their relative outperformance

• Our overall bullish stance is validated by :

• Nifty has given a conclusive breakout from eight month’s falling channel signalling end of corrective phase. Breakout is well supported by sequential improvement in market breadth as percentage of stocks above long term 200 day EMA rose from end July reading of 51% to 60% indicating broad based nature of rally

• Brent crude has given a breakdown below key support line since CY20 lows. We expect a decisive breach below $92 to accelerate downward momentum towards $86 in coming weeks

• The Nifty registered a bullish golden crossover in August (50-DEMA crossing above 200-DEMA) implying major shift of momentum from a medium term perspective. In last decade, in eight out of 10 such instances, the Nifty has generated average 11% return in subsequent three to four months

• The recent shallow consolidation would make market healthy by cooling off overbought conditions (currently weekly stochastic cooled off to 62 from mid August reading of 97).

• We retain the support base at 16800 as it is 50% retracement of JulyAugust rally (15858-17992)

• In the coming session, index is likely to open gap down amid weak global cues. We expect the index to hold above the 21 days EMA on a closing basis (placed around 17480) and witness a pullback. Hence use intraday decline towards 17415-17445 for creating long position for the target of 17534

Nifty Bank

Technical Outlook

• The daily price action formed a small bear candle as the index opened higher, however profit booking around the psychological 40000 levels saw the index gave up some of its gains and closed marginally lower on Tuesday

• Going ahead we expect the index to maintain positive bias and gradually head towards 40800 levels in the coming weeks being the 161 . 8 % external retracement of the last three weeks breather . The index has retraced 7 sessions decline (39759 - 37944 ) in just 4 sessions signaling strength and continuation of the up move

• Structurally the recent rally from June lows of 32290 is strongest in magnitude terms since October 2021 while declines are smaller and short lived indicating an improving price structure . Hence, we view ongoing consolidation as healthy retracement that will make larger trend healthier and set stage for next leg of up move . Therefore, we recommend to use dips amid ongoing consolidation as incremental buying opportunity

• Bank Nifty continue to relatively outperformed the benchmark index in the last few quarters as can be seen in the Bank Nifty/Nifty ratio chart . Within the banking stocks PSU banking stocks has been resilient and showing relative strength which we expect to outperform going forward

• The index has support around 38000 levels as it is the confluence of the last two weeks almost identical low and the 38 . 2 % retracement of the previous major up move (34464 - 39759 )

• In the coming session index is likely to open gap down amid weak global cues . We expect the index to hold above the 61 . 8 % retracement of the recent up move (38129 -40174 ) placed at 38900 levels and witness a pullback in the coming sessions . Hence use intraday dips towards 39040 -39120 for creating long position for the target of 39370 and maintain a stoploss at 38910

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