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Nifty above 16800 would aim for 17200, volatility to remain high amid Russia-Ukraine war; check top stocks

The weekly price action formed a bear candle in NSE’s Nifty 50 index in carrying lower high-low, indicating extended correction

Niffty, bank nifty, stock market
Key point to highlight is that, time-wise index has maintained the rhythm of not correcting for more than three consecutive weeks, since April 2020. Image: Pixabay

By Dharmesh Shah 

The geopolitical jitters dominated the previous week that triggered a spike in crude oil. As a result, the Nifty 50 index breached key support of 16800, contrary to our expectation. The weekly price action formed a bear candle in NSE’s Nifty 50 index in carrying lower high-low, indicating extended correction. Meanwhile, lower shadow signifies supportive efforts in the vicinity of 52 weeks EMA.

In the upcoming truncated week, volatility is expected to remain high tracking ongoing geopolitical concerns. Consequently, global cues will dictate the future trend. In the process, we believe holding above the key support threshold of 16200 would keep pullback options open. Further, a decisive close above 16800 along with cool off in India VIX and crude oil will add fuel to the ongoing pullback rally towards 17200 as it is the 61.8% retracement of February decline (17795-16203), placed at 17186.

Key point to highlight is that, time-wise index has maintained the rhythm of not correcting for more than three consecutive weeks, since April 2020. In the current scenario, as the index has already corrected over the past three weeks, we believe Nifty 50 is poised for a technical pullback from the oversold territory. On the downside, 16200 will be the key level to watch, as it is a confluence of:

a) Price parity of October – December decline (18604 -16410), projected from January high of 18350

b) current week’s panic low is placed at 16203    

Amidst elevated volatility sectors such as  BFSI, IT, Metal, Capital goods and auto will offer favourable risk reward.

On the stock front, in large caps we like Infosys, State Bank of India (SBI), Bajaj Finance, Hindalco Industries, Tata Motors, Titan Company while in Midcaps we prefer Siemens, Apollo Hospitals, Timken, Inox Leisure, Trent, Mindtree.

The broader market indices relatively underperformed the benchmark in the week gone by. The Nifty midcap and small cap indices have closed marginally below 52 weeks EMA. Thus, we expect broader market to relatively underperform the benchmark in the coming week

Bank Nifty Outlook

The Bank Nifty traded with high volatility as it extended losses over a third consecutive week tracking escalating geopolitical concerns. The index closed the week lower by 3%. The weekly price action formed a bear candle with a lower high-low and a long lower shadow, indicating extended correction as contrary to our expectation the index breached the support area of 37000. Meanwhile, lower shadow signifies supportive efforts in the vicinity of 52 weeks EMA

In the upcoming truncated week, volatility is expected to remain high tracking ongoing geopolitical concerns. Index holding above the key support threshold of 35000 would keep pullback options open. Further, a decisive close above 37000 along with cool off in VIX and crude oil prices will lead to a pullback rally towards 38100 levels in the coming week being the confluence of the previous week high and 80% retracement of February decline (39424-34991)

Index has major support at 35000 levels being the confluence of the following technical observations:

a) 80% retracement of the previous up move (34018-39424

b) lower band of the rising channel in place since last one year is placed around 35000 levels

c) the rising 52 weeks EMA is placed at 35500 levels

Among the oscillators the weekly 14 periods RSI is seen forming a base around the neutral reading of 40, signaling an impending pullback in coming weeks

(Dharmesh Shah is the Head – Technical at ICICI Direct. Please consult your financial advisor before investing.)

ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1% or more securities of the subject company, at the end of 21/01/2022 or have no other financial interest and do not have any material conflict of interest. I-Sec or its associates might have received any compensation towards merchant banking/ broking services from the subject companies mentioned as clients in preceding 12 months.

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