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Nifty to undergo base formation amid stock specific action

Technical Outlook

* In line with our view, index staged a decent pullback from oversold territory after 10% correction from life highs of 18600. As a result, index maintained the rhythm of not correcting for more than 9-10% since May 2020. The weekly price action formed a small bull candle with shadows on either side, indicating pause in downward momentum amid elevated volatility. In the process, index managed to hold the 100 days EMA which has offered incremental buying opportunity on couple of occasions since June 2020, highlighting structural bull trend is intact

* Going ahead, we remain optimistic on the market as we expect index to undergo a base formation in the broader range of 17500-16800 wherein stock specific action will continue. Thus, extended breather from hereon should not be construed as negative instead dips should be capitalised to accumulate quality stocks as we do not expect Nifty to breach the last week’s panic low of 16800 being confluence of: a) 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 b) since May 2020, in all 3 corrections index retraced 38% of preceding rally. 38% retracement of current rally is placed at 16900

* For the coming week, 17500 would act as immediate resistance as it is confluence of : a) 50 days EMA is placed at 17566 b) 50% retracement of recent decline (18210-16782) at 17496. c) Last week’s high is placed at 17490

* Sectorally, IT, Real Estate, Capital goods expected to relatively outperform while BFSI, auto provide favourable risk-reward setups

* In large cap space we like Reliance, SBI, HDFC, Tech Mahindra, Tata Motors, Powergrid, Ultratech Cement, DLF, Titan while in Mid cap space we prefer Phoenix Mills, ABB, Dixon, Greaves Cotton, Suprajit, Supreme Industries, NRB Bearing, Tata Chemical, Tata Communications

* The broader market indices are forming a higher base above 100 days EMA which has been held since June 2020, highlighting robust price structure. We believe, ongoing consolidation will make market healthy. Therefore, focus should be on accumulating quality stocks to ride structural uptrend In the coming session, the index is likely to open on a flat note amid mixed global cues. We expect buying demand to emerge around 100 days EMA. Hence, use dips towards 17130-17162 for creating long position for target of 17247

NSE Nifty Weekly Candlestick Chart

Nifty Bank: 36197

Technical Outlook

* The weekly price action formed a Doji candle with long shadows in either direction signaling deceleration of the downward momentum of the last three weeks as the index is seen forming a base at the 200 days EMA (currently at 35341 )

* Going ahead, we expect the index to hold above the 200 days EMA and continue with its previous week base formation in the broad range of 35300 -37100 . Hence dips towards the long term average provides incremental buying opportunity in quality banking stocks

* Nifty Bank has immediate support at 35300 levels being the confluence of the 200 days EMA and the 80 % retracement of the August -October 2021 rally (34115 -41829 ) 

* For a sizable pullback to materialize in the index it need to start forming higher high -low in the daily chart on a sustained basis and close above the immediate hurdle of 37100 levels

* The index since April 2020 in major corrective phase has taken 6 - 8 weeks, with six weeks of corrective decline already behind us we expect the index to form a base in the coming couple of weeks

* On the higher side last Friday’s gap down area of 37100 which also confluence with the 38 . 2 % retracement of the November decline (40160 -35328 ) is likely to act as immediate hurdle for the index

* Among the oscillators the weekly stochastic has approached extreme oversold territory with a reading of 8 lowest since August 2019

* In the coming session, index is likely to open on a flat note amid mixed global cues . Volatility is likely to remain high on account of the volatile global cues . We expect the index to witness buying demand around the 61 . 8 % retracement of the last week pullback, hence use intraday dips towards 36010 - 36080 for creating long position for the target of 36330 , maintain a stoploss at 35890.

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