Market Outlook - Technical - Sep 11, 2020 - Dharmesh Shah, Head - Technical, ICICI direct
Equity benchmarks recouped intra-week losses and concluded the week on a positive note at 11464, up 130 points or 1.2%. Broader market extended breather over second consecutive week as Nifty Midcap, Small cap lost 1% and 0.5%, each. Sectorally, IT, energy outshone while banks and metal underperformed during the week.
The weekly price action resembles a hammer like candle with small real body and long lower shadow, as index recovered more than 300 points after witnessing supportive efforts from key support of 11100, as it is 80% retracement of August rally (10882-11794) at 11064. Since May 2020, index had not posted more than one negative weekly close. This rhythm was maintained in the last week as well, indicating up trend is intact.
Going ahead, we expect Nifty to extend the ongoing consolidation (11100-11500) amid stock specific action as over past ten sessions index retraced 80% of preceding 10 sessions up move (11111-11794). Lack of faster retracement on either side signifies prolonged consolidation. We believe Nifty has stiff resistance in the range of 11500-11550 as it is confluence of a) 61.8% retracement of ongoing decline (11794 -11185), at 11562 b) negative gap (11527 - 11452) recorded on September 4, 2020.
Our technical outlook is based on following monitorables:
a) Since May lows, the Bank Nifty index has not extended intermediate corrective phase for more than nine consecutive sessions. In current scenario, Bank Nifty index has taken a breather after nine consecutive sessions decline (25233-22080) amid oversold placement of daily stochastic oscillator (placed at 23), indicating impending pullback in banking stocks, which will help Nifty to drive higher towards 11550, as constituents of Bank Nifty carries 33% weightage in Nifty
b) Since beginning of CY20, the domestic market have enjoyed positive correlation with developed market peers. Currently as DJIA has approached its key support threshold of 27500 (as per change of polarity concept June high of 27580 would now act as strong support). Thus, lack of follow through selling in global equities would be key monitorable for similar price action to pan out in domestic market
We believe any cool off from here on would find its feet around key support threshold of 11100 as it is confluence of:
a) 80% retracement of August rally (10882-11794) at 11064 b) Identical weekly lows of mid-August at 11111 c) 50 days EMA is placed at 11119
We expect, broader market to relatively outperform the benchmark, as after past two week's correction (~8%), both, Nifty midcap and small cap indices found support from ~50% retracement of their August rally. We believe, broader market has undergone healthy consolidation, thus any cool off from hereon should not be construed as negative, instead it should be capitalized to accumulate quality midcap and small caps which offers fresh entry opportunity with favourable risk reward.