Through Dharmesh Shah
Stock indices started the CY22 on a dynamic note amid firm global signals. The Nifty closed the previous week at 17,812, up 2.6%. The Nifty midcap and small cap indices performed in tandem with the benchmark, gaining 2% each. At the sector level, finance, autos and metals remained in the foreground while pharma and IT took a hiatus before earnings seasons
Clever technical perspectives
In line with our view, the Nifty 50 Index continued to move north and broke our target of 17,600. As a result, the weekly price action formed a bullish candle carrying a lower high, which means continuation of the bullish momentum.
Going forward, we expect the Nifty to keep rising and heading towards 18,200 in the coming weeks. Our constructive thesis on the market is based on the following observations:
a) Nifty and Bank Nifty both showed strength after registering a falling channel break. Confirmation of the conclusion of the corrective phase
b) Since June 2020, on several occasions, a strong purchase demand has emerged from the 5-month average, which paved the way for a questioning of the peaks of life in the following months. Still in the current scenario, the index rebounded from the 5-month average. Thus offering a new entry opportunity in the medium term
c) Cross-sector participation as well as improved market reach bodes well for the longevity of the uptrend
For the coming week, the decline remains moderate around a strong support of 17,500 levels. So, any cooling from this point on should be capitalized to accumulate quality actions in order to mount the next step around 18200, as it is the confluence of:
a) The 80% retracement of the entire decline since October 2021 (18604-16410) is placed at 18165
b) The high for November 2021 is placed at 18210
We expect the IT, BFSI and Automotive sectors to outperform, while Metal and PSU offer a favorable risk / reward ratio.
In large caps we like Reliance Industries Ltd (RIL), TCS (Tata Consultancy Services), State Bank of India (SBI), Bajaj Finance, HDFC Life, Hindalco, Maruti Suzuki India, DLF, Ambuja Cement while in midcaps, we prefer Federal Bank, Canara Bank, Orient Cement, Jamna Auto, Vardhman Special Steels, LT Technology Services, Aditya Birla Fashion and Retail, Vinati Organics, Mahindra Logistic, SKF India
Wider market indices hold above three months of falling channel break area, indicating a robust price structure. Meanwhile, improving market spread bodes well for the sustainability of the current rally as 60% of Nifty 500 shares are holding above the 50 day EMA from the current rally reading. mid-December by 49%.
Structurally, the formation of a lower higher on the weekly chart means that the positive bias is intact, making us confident to revise the support base in the 17400-17500 range as it is at the confluence of:
a) 61.8% retracement of the current bullish movement (17146-17944)
b) the low of the current week is placed at 17383
Shrewd outlook from the bank
Bank Nifty saw a sharp rise and closed the previous week up over 6%, the highest weekly percentage gains since May 2021. Weekly price action formed a major bullish candle with a higher and a firm close above the bearish channel containing the price decline of the past two months signaling the rejuvenation of the bullish momentum.
Going forward, we expect the index to maintain a positive bias and gradually extend the current bullish movement towards the 38800 levels in the coming weeks as this is the 61.8% retracement of the together. gout (41829-34018)
In the process, bouts of volatility cannot be ruled out. However, any decline from this point should not be interpreted as negative, but rather as an additional buying opportunity, as we forecast strong buy demand around 36,500 levels.
The index has support of around 36,500 levels, representing the 38.2% confluence retracement of the current bullish move (34233-38134) and the 100-day bullish EMA currently placed at 36,700 levels.
Among the oscillators, the Weekly Stochastic is in an uptrend and rebounds based on its three-period average, validating the positive bias of the index in the weeks to come.
(Dharmesh Shah is the Technical Director of ICICI Direct. Please consult your financial advisor before investing.)
ICICI Securities Limited is a registered SEBI research analyst with a registration number. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec do not have the beneficial / beneficial ownership of 1% or more of the securities of the company in question, at the end of 04/22/2021 or any other financial interests and have no material conflicts of interest. I-Sec or its associates may have received any compensation for merchant banking / brokerage services from the relevant companies mentioned as clients in the past 12 months.
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