Market Outlook - Technical - June 26, 2020 - ICICI Securities
By Dharmesh Shah, Head - Technical, ICICI direct
Equity benchmarks concluded June series derivative expiry week on a buoyant note, despite elevated global volatility. Nifty ended the week at 10383, up 139 points or 1.4%. In line with our expectation, broader market continued to outperform as Nifty midcap and small cap rose 2.8%, each. Sectorally, all major indices ended in green lead by FMCG, IT, PSU Banks and metal.
On expected lines, Nifty approached in the vicinity of our target of 10600 and witnessed profit booking at 61.8% retracement of entire CY20 decline (12430-7511), 10550. The elevated volatility near 10600 mark resulted index to form high wave candle, indicating breather after past two week's sharp rally (~11%), which will help weekly stochastic oscillator to cool off from overbought zone (currently placed at 87).
In the coming week, we expect Nifty to consolidate in the broader range of 10200-10600 with a positive bias wherein broader market would continue to outperform. Meanwhile, volatility at higher levels cannot be ruled out therefore stick to quality stocks. Only a decisive close below 10200 would lead to extended breather.
Key point to highlight during ongoing up move is that:
A) During ongoing major up move since March low of 7511, barring one instance, index has not corrected for more than two consecutive sessions which was also observed in Friday's session, indicating inherent strength. Thus we believe, any temporary breather from here on (two to three sessions) should be used as incremental buying opportunity in quality stocks
B) Nifty midcap and small cap indices have been outperforming the benchmarks. In the process, it formed higher high-low supported by improved market breadth, indicating broader market participation which augurs well for durability of ongoing up move
C) India VIX extended correction over second consecutive week, indicating subdued volatility and continuation of risk-on sentiment. The VIX has inverse correlation with the Nifty. Thus we believe VIX will be the key thing to gauge the market sentiment
We believe the Nifty has strong support at key support threshold of 9900 as it is confluence of a) 61.8% retracement of current up move (9544 - 10553), at 9936 b) 100 days SMA is placed at 10000.
Structurally, over the past two decades it has been observed that, post major correction of more than 40% (seen in 2000-01 & 2008) the index enters a volatile phase. In both historical instances, after a first sharp pullback, (in CY01-02 it rallied 42% and in CY08-09 it rallied 44%) from major low, the index saw a corrective phase. In the current scenario, index has completed its 40% pullback from major low seen during March 2020 of 7511. We expect it to maintain the same rhythm as observed in historical instances and enter the volatile phase in coming weeks.