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Below the quote on Weekly Note by Mr. Ajit Mishra, SVP - Technical Research, Religare Broking Ltd

Markets ended lower in the holiday-shortened week and lost over a percent. A sharp cut in the index at the beginning pushed the bulls on the back foot however resilience in the select heavyweights capped the damage. Eventually, both the benchmark indices, Nifty and Sensex, ended lower and settled at 21,352.60 and 70,700.67 levels.  On the sectoral front, all indices, barring pharma, closed in the red wherein realty, banking and financials were among the top losers.  The broader indices also witnessed profit taking and shed in the range of 0.8%-1.8%.

We expect volatility to remain high in the coming week as well due to the prevailing earnings season and the scheduled interim budget on Feb 01.  At the same time, cues are favorable from the global front wherein the US markets are showing noticeable strength and inching higher with every passing week. We are eyeing the “39,000” mark in the Dow Jones Industrial Average (DJIA), with a strong base at 37,500-37,800 zone.

Nifty is down ~2% this month so far despite the sharp cut in banking majors, thanks to rotational buying in other heavyweights. With the banking index at its long term moving average i.e. 200 DEMA, we feel stability in private banks may provide the impetus for rebound however 21,750-22,000 zone would continue to act as a hurdle. On the downside, we expect the index to hold the 20,800-21,000 zone in case the pressure increases. We thus advise focusing on stock selection & risk management and using recovery to reduce positions in midcap and smallcap space.

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