By Dharmesh Shah
Equity benchmarks extended their losing streak over the fourth consecutive week amid escalating geopolitical concerns that led to spike in crude oil prices. The Nifty settled the truncated week at 16245, down 2.5%. The broader market indices relatively outperformed as Nifty midcap and small cap lost 1.6% and 0.4%, respectively. Sectorally, Metal, Oil & Gas and IT remained in limelight while auto, financials, realty extended correction.
- The index witnessed a roller coaster move, as index witnessed more than 2300 points intra-week movement. As a result, weekly price action formed a bear candle carrying shadows on either side, indicating extended correction amid elevated volatility. In the process, Nifty managed to hold last week’s panic low of 16200 on a closing basis
- Key point to highlight is that, the index has approached at the 52-week EMA placed at 16350 amid oversold readings, led by anxiety around geo political events, outcome of UP election and US Fed policy. Going ahead, strong support for the Nifty is placed at 15800-15900 zone. Therefore, stability in form of base formation around 15800-15900 would set the stage for technical pullback from oversold territory.
- Over past two decades, in last 16 out of 20 occasions the index managed to hold 52-week EMA and generated decent returns in the next three to six months. In the current scenario, we expect this rhythm to be maintained as the index has approached vicinity of 52 week’s EMA along with oversold conditions.
- As per change of polarity concept earlier support of 16800 has been acting as an immediate resistance over past five sessions which coincided with 61.8% retracement of past two weeks decline (17351-16134). Thus, only a decisive close above 16800 along with cool off in VIX will add fuel to the pullback rally
- Amidst elevated volatility IT, BFSI, Capital goods offer favourable risk-reward setups while Metals to relatively outperform
- Our preferred large cap picks are Infosys, Reliance Industries, Tata Steel, State Bank of India, Titan, Siemens, Tech Mahindra while in Midcaps we like Mphasis, Trent, Inox Leisure, Gabriel, PNC Infra, Balrampur Chini
- The Nifty midcap and small cap indices are hovering in the vicinity of key long term average of 52 weeks EMA. We expect broader market to undergo base formation amid ongoing global volatility.
Bank Nifty Outlook:
- The Bank Nifty continue to trade with corrective bias as it extended losses over fourth consecutive week tracking escalating geopolitical concerns and rising crude oil prices. The index closed the week lower by more than 5%. The weekly price action formed a bear candle with a lower high-low indicating continuation of the corrective decline
- The index is currently placed near the vicinity of the December lows of 34000, holding above the same on a closing basis will lead to a consolidation in the coming week. However, failure to do so and a sustained closing below the same will lead to extended decline towards the major support area of 32800-32600.
- We expect buying demand to emerge around the major support area of 32800-32600 and technical pull back to materialise with key resistance placed at 35800 levels, hence suggest to use the dips to accumulate quality banking stocks
- Index has major support at 32800-32600 levels being the confluence of the following technical observations:
- 80% retracement of the previous major up move of April-October 2021 (30406-41829) placed at 32700 levels
- previous major breakout area of February 2021 is also placed around 32600 levels
- Among the oscillators the weekly stochastic is approaching oversold territory with a reading of 23, signaling supportive effort is likely at lower levels in the coming weeks.
(Dharmesh Shah is the Head Technical at ICICI Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)