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Nifty:17415

Technical Outlook

* The index started Wednesday’s session on a positive note. However, it failed to sustain above previous session high as fag end sell-off led Nifty to slide ~250 points from day’s high of 17600. The daily price action resembles a dark cloud cover candle that retraced 61.8% of Tuesday’s candle, indicating profit booking at higher levels

* We expect volatility to remain high ahead of monthly derivative expiry session. Hence, extended correction from hereon should not be construed as negative instead dips should be capitalised on as buying opportunity as we do not expect index to breach the key support threshold of 17100-16900 zone in coming weeks. Meanwhile, during Wednesday's pullback the index failed to reach the 50 days EMA placed at 17700, highlighting weak pullback. Thus, 17700 would continue to act as immediate resistance

* Structurally, intermediate correction within a secular bull market offered a fresh entry opportunity. Over past 20 months, 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 

* 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, we expect index to consolidate amid monthly expiry induced volatility. Hence after a subdued opening use intraday pullback towards 17468-17490 for creating short position for target of 17375.

NSE Nifty Daily Candlestick Chart

Nifty Bank: 37442

Technical Outlook

* The daily price action formed a high wave candle with a long upper shadow signaling profit booking at higher levels and continuation of the consolidation for the second consecutive session 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 . 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 Monday’s high 38200 which also coincides with the 50 days EMA (currently placed at 38245 ) is likely to act as immediate hurdle for the index

* The daily stochastic is seen rebounding from the oversold territory with a reading of 28 signaling supportive effort is likely at lower levels in the coming sessions

* In the coming session, index is likely to open on a flat to negative note amid mixed global cues . We expect, the index to continue with its last two sessions consolidation with high volatility on account of monthly expiry . Hence use intraday dips towards 37120 -37190 for creating long position for the target of 37440 , maintain a stoploss of 36990.

Nifty Bank Index – Daily Candlestick Chart

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