By Dharmesh Shah
The Nifty 50 index has regained upward momentum and advanced in four out of five sessions, underscoring improved momentum. As a result, the weekly price action formed a bullish candle bearing a higher high, indicating the resumption of the uptrend as the index resolved above the two-week consolidation (17440-17000). Going forward, we expect the Nifty to extend its northward journey and head towards 18100 in April.
Our positive position is based on the following observations:
a) the index has resolved out of the bull flag formation, causing the bullish momentum to accelerate. This overall development resulted in a larger rally (2032 points) compared to the December-January rally (1940 points) which would further strengthen the price structure;
b) Bank Nifty recorded a resolved breakout from an inverted head and shoulders pattern, indicating a bullish reversal. Rejuvenating bullish momentum in banking stocks bodes well for Nifty’s traction, with financials having a 35% weighting in Nifty
c) Historically, we have observed that the oversold reading of sentiment indicators (percentage of stocks below 200-DMA) leads to a decent upside in subsequent months. In the current scenario, the sentiment indicator rebounded from the oversold territory with a reading of 45%, indicating an extension of the bullish movement going forward.
Our target of 18100 is based on the following observations:
a) 80% retracement of the entire corrective phase since October 2021 (18604-15671)
b) descending oblique trend line drawn adjoining the October-January highs (18604-18350)
Sector-wise, IT, BFSI and Metals should do well on a relative basis, while Capital Goods and other rate-sensitive items could see stock-specific action. Our favorite large cap picks are Tata Consultancy Services (TCS), Reliance Industries Ltd (RIL), SBI (State Bank of India), Bajaj Finance, Tata Motors, Tata Steel while Amber, Bharat Electronics, Canara Bank, Mindtree, Chambal Fertiliser, Concor, NMDC in mid cap.
Structurally, despite high crude prices and a hawkish stance by the Fed, the Nifty 50 index managed to form a solid base around 17,000 points and resolved higher, underscoring its inherent strength. The breakout of the consolidation confirms a higher base which makes us confident to revise the support base at 17200 as it is an 80% retracement of the current bullish move (17004-17703), placed at 17144 coinciding with the 50 day EMA. Broader equity indices are regaining upward momentum after forming a higher base above the 52-week EMA. We expect the Nifty midcap and small cap indices to continue to catch up with their large cap peers in the coming weeks. Thus, the focus should be on accumulating quality mid-cap stocks
Astute insights from the bank
Bank Nifty rebounded strongly in the previous week and closed 5% higher, following dynamic global signals amid peace talks between Russia and Ukraine, which drove the VIX lower, crude oil prices and an easing of fiscal concerns. The weekly price action formed a strong bullish candle that closed firmly above the two-week highs (36827), signaling strength and the continuation of the positive bias.
The volatile consolidation of the last six weeks looks like an inverted Head & Shoulder, a bullish reversal pattern on the daily charts. Friday’s session index generated a break above the neckline of the inverted head and shoulders pattern signaling a corrective trend reversal and an upside open towards the 38100-38400 levels in the weeks to come. coming being the measuring implication of the breakout of the head and shoulders pattern and 80% retracement of the Feb-March decline (39424-32155).
In the process, any temporary breaks should not be seen as negative, but rather should be capitalized as a buying opportunity in quality bank stocks, as we do not expect the index to break through the support zone. 36000 levels being the confluence of:
a) 50% retracement of previous week bullish move (35016-37209) placed at 36100 levels
b) The rising demand line joining the immediate lows of March 8 (32155) and March 28 (35016) placed around 36000 levels
Among the oscillators, the weekly Stochastic remains in the uptrend currently placed at a reading of 69, which supports the overall positive bias of the index
Dharmesh Shah is the Technical Manager of ICICI Direct. Please consult your financial advisor before investing.)
ICICI Securities Limited is a SEBI registered research analyst under registration number. INH000000990. It is confirmed that the Research Analyst or his relatives or I-Sec does not own the beneficial/beneficial ownership of 1% or more of the securities of the relevant company, as of the end of 01/21/2022 or have no other financial interest and do not have a material conflict of interest. I-Sec or its associates may have received compensation for investment banking/brokerage services from the relevant companies listed as clients in the previous 12 months.