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Nifty approaching key support threshold of 16900…

Technical Outlook

* The index started the week on a subdued note and breached 50 days EMA, contrary to our expectation resulting in acceleration of downward momentum. As a result, the daily price action formed a bear candle carrying lower high-low, indicating extended corrective phase.

* We believe ongoing corrective phase to get anchored around 16900-16700 based on following observation over past 20 months:

* a) Since May 2020, in all three corrections index retraced 38% of preceding rally. 38% retracement of current rally is placed at 16900

* b) since May 2020, index has not corrected for more than 10%. In current scenario, 10% correction from life high of 18600 will mature at 16740

* In current scenario, as Nifty has already corrected 8.7% from life highs of 18600 amid oversold placement of weekly stochastic (currently placed at 21), we expect markets to maintain this rhythm. Thus, investors should not panic during ongoing corrective phase, instead dips should be capitalized to build quality portfolio over medium term perspective

* Meanwhile, for the coming week key hurdle on the upside is placed at 17600 being 50 days EMA.

* Sectorally, BFSI and IT provide favourable risk-reward setup with oversold readings while capital goods and Telecom remain resilient

* In large cap space we like Reliance, Kotak Bank, SBI, TCS, Divis’s Laboratories while in Mid cap space we like Fortis Hospitals, Indoco Remedies, Brigade Enterprises, Minda Corporation, Triveni Engineering, BEML, Thermax

* The broader market indices are relatively outperforming the benchmark 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, the index is likely to open on a positive note. We expect volatility to remain high near key support threshold of 16900. Hence, use dips towards 16950-16985 for creating long position for target of 17067.

NSE Nifty Weekly Candlestick Chart

Nifty Bank: 36025

Technical Outlook

* The weekly price action formed a sizable bear candle with a lower high -low signaling continuation of the corrective bias for the fifth consecutive week .

* Intraweek pullback were short lived on breach of the 50 days EMA as the index extended its decline . It has led to the weekly stochastic oscillators placed at an extremely oversold territory with a reading of 9 lowest since August 2019

* We expect ongoing corrective phase to get arrested around the 200 days EMA placed around 35300 levels which also coincides with the 80 % retracement of the August -October 2021 rally (34115 -41829 ) and enter into a base formation around the long term moving average

* 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

* On the higher side Friday’s gap down area of 37100 is likely to act as immediate hurdle for the index in the coming week

* Among the oscillators the weekly stochastic has approached extreme oversold territory with a reading of 9 indicating an impending pullback

* In the coming session, index is likely to open on a positive note . Volatility likely to remain high on account of the volatile global cues . However, we expect index to form base around the 36000 levels in intraday trade . Hence after a positive opening use dips towards 35970 -36040 for creating long position for the target of 36290 , maintain a stoploss of 35850.

Nifty Bank Index – Daily Candlestick Chart

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