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Nifty to surpass immediate hurdle of 16400…

Technical Outlook

* In line with our view, buying demand emerged from the key support zone of 16000-15800 amid oversold conditions, which helped index to recoup intraweek losses and extend the winning streak over second consecutive week after five week’s decline. As a result, the index managed to hold lows of last week’s Tweezer bottom candle, signifying abating downward momentum. The weekly price action formed a small bull candle with long lower shadow, indicating elevated buying demand

* Going ahead, a decisive close above upper band of consolidation placed at 16400 would provide directional bias, leading acceleration of upward momentum towards 16800 in coming weeks. Thus, any dip towards 16100-16000 should be used to accumulate quality stocks as we expect buy dips strategy would continue to fare well. Further, cool off in VIX along with broad based participation would be key monitorables that should support sustainable recovery in the market

* Key point to highlight is that, Bank Nifty (which carries 35% weightage in Nifty) has resolved out of past two weeks high, indicating resumption of upward momentum after six weeks’ corrective phase. We believe, rejuvenated upward momentum in banking stocks would fuel the pullback rally towards 16800 in coming weeks as it is confluence of: (a) 200 day’s EMA placed at 16755 (b) 50% retracement of the entire April-May decline (18115-15735)

* Sectorally, BFSI, Auto, Capital goods remain resilient while IT is poised at key support amid extreme oversold territory that augurs well for technical pullback in IT stocks

* In large caps, we prefer Reliance industries, SBI, Kotak Bank, HDFC LIFE, TCS, LTI while in midcaps we prefer ABB, Ashok Leyland, Balkrishna Industries, Hindustan Aeronautics, Inox leisure, Phoenix mills, Container Corporation, Automotive Axles, Indian Hotels, M&M Finance

* Structurally, index has been maintaining the rhythm of witnessing buying demand in the vicinity of 52 weeks EMA, observed over past two decades. Despite elevated global volatility, Nifty managed to hold the key support threshold of 15600 on multiple occasions in past three weeks. Thus, going ahead, we do not expect Nifty to breach the 15600 level, as it is confluence of: (a) 61.8% retracement of CY21 rally

* (b) equality of previous down leg 14% projected from Apr high 18115

* Broader market indices have taken a breather after recent sharp decline. We expect Nifty midcap and small cap indices to form a base while sustaining above last week’s panic low. On the contrary, breach below May low would lead to prolongation of downward momentum

* In the coming session, index is likely to witness gap up opening tracking positive global cues. We expect index to trade with a positive bias while maintaining higher high-low. Hence, use intraday dip towards 16380- 16412 for creating long position for the target of 16498.

NSE Nifty Daily Candlestick Chart

Nifty Bank: 35613

Technical Outlook

* The weekly price action formed a strong bull candle with a higher high -low and a firm close above its last two weeks high signaling positive bias . The index in the process has also closed above a falling supply line joining highs of the last seven weeks signaling a reversal of the recent corrective trend and resumption of up move .

* Going ahead, we expect the index to maintain positive bias head towards 36500 levels in a nonlinear fashion being the confluence of the 200 days EMA (placed at 35948 ) and the 61 . 8 % retracement of the April -May decline (38765 -33002 ) . Buying on dips towards 34500 -34800 levels should be rewarding as we expect index to hold above last week low (34115 )

* Key observation in the recent market correction is that the bank Nifty is relatively outperforming the Nifty as it is seen rebounding taking support near the 80 % retracement of the March up move (32156 -38765 ) and has already formed a higher high -low in the weekly time frame . Bank Nifty/Nifty ratio chart is seen reversing from last 15 months falling channel highlighting strength and continuation of the current outperformance

* The index has formed a higher high -low on the weekly time frame which make us confident to revise the key support base higher towards 33000 levels as it is the confluence of :

* (a) The value of the rising trendline joining lows of April 2021 (30405) and March 2022 (32155) • (b) The low of May 2022 is also placed around 33000 levels

* Among the oscillators the weekly stochastic has generated a buy signal as it rebounds from extreme oversold territory thus validates positive bias

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