Market for next week: Positive momentum to continue, Nifty eyeing 11400 - ICICI Secruities
Market Outlook - Technical
By Dharmesh Shah, Head - Technical, ICICI direct
Equity benchmarks extended its winning spree over a fifth consecutive week amid buoyant global cues. As a result, Nifty ended the week at four months high at 10902, up 125 points or 1.2%. Broader markets took breather after past seven weeks up move. Nifty midcap remained unchanged while small cap lost 0.4%. Sectorally, IT, Pharma and FMCG outshone while financials and realty took a breather.
- The weekly price action formed a small bull candle with a long lower shadow, indicating elevated buying demand, as on expected lines Nifty managed to hold lower band of consolidation placed at 10600 on three occasions during the week and resolved above 10900 that confirms triple bottom formation. In the process, Nifty managed to close above its long term 200 days SMA (placed at 10870) for the first time since February, indicating rejuvenation of upward momentum.
- We reiterate our positive stance on Nifty over medium term and expect index to head towards 11400 levels by August 2020. We believe, the rally towards 11400 is likely to be gradual as index has rallied 15% in past five weeks, thereby pushing weekly stochastic oscillator to overbought reading of 97. This could result into temporary episodes of minor profit booking at higher levels. However we believe, such a breather should not be construed as negative, instead it should be capitalised to accumulate quality stocks amid ongoing Q1FY21 result season to ride the up move towards 11400 as it is 80% retracement of entire CY20 decline (12430 - 7511), placed at 11445.
Key point to highlight during the week that corroborates our positive stance are:
a) India VIX (which gauges market sentiment) extended its losses over fifth consecutive week and sustaining below 200 days EMA, indicating diminishing volatility, which signifies continuance of risk-on sentiment. The VIX has inverse correlation with the Nifty. Thus, falling VIX will continue to act as tailwind for the next leg of up move
b) Market breadth, which gauges underlying strength, has continuously improved, as ~80% constituents of the Nifty midcap and small cap indices are sustaining above their 100 days SMA compared to last month's reading of ~40%. The significant improvement in market breadth augurs well for durability of ongoing relative outperformance
- The formation of a higher peak and trough on the weekly chart signifies continuance of positive bias which make us confident of maintaining support base at 10600 as it is confluence of a) 38.2% retracement of ongoing up move (10195 - 10933), at 10651 b) during past four weeks on multiple occasions index reacted from 10600 zone. Thus as per change of polarity concept, previous resistance of 10600 would now act as support c) last week's low is placed at 10563.
Market Outlook - F&O
By Amit Gupta, Head - Derivatives, ICICI direct
Derivatives Weekly View (July 17): Nifty to target 11200 with support at 10750...
Nifty to target 11200 with support at 10750
The Nifty has consolidated with a positive bias during the week and been able to recover from lower levels of 10550 on fresh additions. The index is likely to test 11000, 11200 levels in coming weeks with support seen at 10750. The highest Call base is almost equally placed at 11000 and 11200 strikes. Thus, a move above 11000 would lead to another leg of short covering towards 11200.
Banking heavyweights have remained quite underperformers and a leg of short covering is expected in these stocks. This is expected to keep indices at higher levels.
Bank Nifty: Level of 21000 remains strong support for week...
The Bank Nifty relatively underperformed in this current leg of the Nifty from 10200 to 10900 whereas stock specific activity continued in banking stocks. Most private banks have the highest Call base at ATM strikes, which kept the Bank Nifty move in check. HDFC Bank result is lined up this weekend, which will trigger some volatility in the index. However, we feel a close above 1100 in HDFC Bank again would trigger short covering.
An almost 1000 points rally was seen in the Bank Nifty in the last two days of the week where PSU banks along with private participated. NBFCs also saw short covering, which will keep BFSI overall sentiment positive.
Positional Future Recommendation
Long Bajaj Auto (BAAUT) July future in the range of Rs. 2960-2980. Target: Rs. 3210; Stop Loss: Rs. 2840
Bajaj Auto has outperformed the rest of the auto stocks and exhibited significant resilience in market volatility. It has scaled back to its February highs from where the market had started declining. From an F&O point of view, the open interest is still low. We expect the ongoing outperformance to trigger fresh longs in it, which should take the stock higher. It has closed near its major Call base of 3000 strike where closure of positions is evident. Hence, further upsides towards its highest Call base of Rs. 3200 due to continued covering cannot be ruled out.