Market Outlook - Technical - Sep 18, 2020 - Dharmesh Shah, Head - Technical, ICICI direct
Equity benchmarks extended gains over second consecutive week as Nifty rose 41 points or 0.4% to settle the week at 11505. Broader markets relatively outperformed as Nifty Mid cap, Small cap climbed 4% and 6%, respectively. Sectorally, pharma, IT outperformed while financials, FMCG underperformed
- The weekly price action formed a high wave candle carrying higher high-low, indicating positive bias amid elevated volatility as index witnessed follow through strength to last week's pullback.
- Going ahead, we expect index to resolve higher and retest the August high of 11800 in coming weeks. Thus, any dip from hereon should be capitalised as an incremental buying opportunity. In the process, we expect broader market to endure its relative outperformance. Our constructive bias on the market is based on following key observations:
a) We expect the Bank Nifty (which carries 33% weightage in the benchmark index Nifty) to hold the key support threshold of 21800-2200 range as it is 80% retracement of August rally (21000-25230), placed at 21900, and pose a decent pullback which will drive Nifty towards 11800 in coming weeks.
b) On expected lines, broader market continued to outperform the benchmark. The faster pace of retracement in Nifty Midcap and small cap indices, supported by improvement in market breadth, as currently 72% constituents of Nifty mid cap and small cap indices have been sustaining above their 200 days SMA compared to past two weeks reading of 65%, signifying rejuvenating price structure that bodes well for durability of ongoing up move. Thus, any temporary breather from here on should not be construed as negative instead it should be capitalised on to accumulate quality midcap and small caps
c) We believe the Nifty has undergone healthy retracement, as it took 15 sessions to retrace 61.8% of preceding 19 sessions up move (10882-11794), 11230. Slower pace of retracement signifies robust price structure that augurs well for next leg of up move
The formation of higher peak and trough on the weekly chart signifies positive bias, which makes us confident to revise support base upward at 11300 as it is confluence of:
a) 61.8% retracement of ongoing up move (11185-11618), placed at 11350 b) Positive gap recorded on September 10 is in the range of (11278-11327)