Weekly Nifty, Bank Nifty Outlook- Index in time-correction, avoid aggressive short bets

Weekly Nifty, Bank Nifty Outlook: Index in time-correction, avoid aggressive short bets

– By Dharmesh Shah

Nifty Outlook:

Equity benchmarks concluded an eventful week on a subdued note amid elevated volatility. Nifty closed the week at 16945 levels down 1%. Broader market relatively underperformed the benchmark as Nifty Midcap and Small cap indices lost ~2% each. Sectorally, pharma, FMCG remained in limelight while IT, metal, realty relatively underperformed.

Technical Outlook

The index started the week on a subdued note and retested last week’s low 16850. However, supportive efforts from key support zone of 16800, helped index to recover some of  intra-week losses. As a result, weekly price action formed a small bear candle with shadows on either side, highlighting prolonged consolidation amid oversold conditions (as weekly stochastic is placed at 15)The index has been trading in a downward slanting channel over past four months, indicating corrective bias. However, key point to highlight is that, past two weeks consolidation 17200-16800 helped index to form a base at lower band of the channel placed at 16800 while absorbing host of negative news globally.  In the upcoming truncated week, holding September 2022 low of 16747 would keep pullback option open towards upper band of consolidation placed at 17200. Subsequently, a decisive close above 17200 would revive upward momentum and fuel the acceleration in ongoing pullback rally towards 200 days EMA placed at 17500. Thus, 17200 would be the key level to watch as it is confluence of last week’s high 17207 coincided with 20 days EMA. We believe, index is undergoing time-wise correction amid oversold conditions. Thus, traders should refrain from creating aggressive short positions, instead look for accumulating quality large caps in a staggered manner as it is a good time to construct portfolio from medium term perspective. Key monitorable for the coming expiry week are: 

A) Going head, cool off in the India VIX (which gauge the market sentiment) below 14 would open the door for pullback in the market as it has negative correlation with index

B) Brent crude prices and US dollar index continue in well-defined down trend, which remain supportive to equities

C) Empirically, episodes of such high volatility globally and domestically has been painful to deal with in short term but always resulted in a durable bottom formation over medium term once anxiety surrounding events settles down. markets has tendency to bottom out amid bad news and Investing in such times of high volatility has always been rewarding.

On sectoral front, BFSI, Capital goods & Infra, Consumption and PSU are in focusOn the stock front, we remain positive on Axis Bank, Hindustan Unilever, Siemens, Titan, Ultratech Cement, Hindustan PetroleumIndex has managed to hold the key support of 16800 despite elevated global volatility which would continue to act as key support as it is confluence of: 

a) September 2022 low is placed at 16747

b) 61.8% retracement of CY22 rally 15183-18887, placed at 16600

Bank Nifty Outlook:

The Bank Nifty declined for the third consecutive week as it traded in a range with high volatility and closed the week at 39395 levels down by 0.6% amid weak global cues. The weekly price action formed a high wave candle which remained contained inside previous week range signalling consolidation with corrective bias Index in the last two weeks is seen consolidating in the broad range of 40200-38600. We expect the index to extend the current consolidation in the coming truncated week and only a sustained move out of the range will signal further directional biasStructurally, ongoing corrective phase has already consumed 15 weeks to retrace 80% gains of preceding 10 weeks rally of October–December (37387-44151). A slower pace of retracement signifies corrective nature of current decline The index has key support at 38200-38600 levels being the confluence of (a) rising 52-week ema and (b) 80% retracement of June-December 2022 up move (37387-44151)The weekly stochastic remain in downtrend and is currently placed at a reading of 30 signalling continuation of the corrective consolidation in the coming weeks

(Dharmesh Shah is the Head – Technical at ICICI Direct. Views expressed are author’s own.)