Market Outlook - Technical - Sep 25, 2020 - ICICI Securities

By Dharmesh Shah, Head - Technical, ICICI direct

Week that was...

Equity benchmarks concluded the September series derivative expiry week on a negative note amid elevated global volatility. Nifty plunged 470 points or 4% to settle the week at 11050. Broader markets performed in tandem with benchmark as Nifty Mid cap, Small cap lost ~5%, each. Sectorally, all major indices ended in red weighed by metal, auto, pharma.

Technical Outlook

- The weekly price action formed a sizable bear candle with a small lower shadow, indicating extended correction on the breach of key support of 11300. In the process, index closed below past six weeks low suggesting pause in upward momentum, despite a pullback after forming a panic low around 200 days SMA at 10800.

- The Nifty has a tendency to witness a pullback after testing the long term 200 SMA amid oversold placement of daily stochastic oscillator (which was placed at 10). However, we do not expect a V shape recovery beyond 11300, rather retesting of the last week's panic low around 10800 cannot be ruled out. Consequently, we expect stock specific activity to continue amid ongoing consolidation in the range of 11300-10800, which will help index to cool off the weekly stochastic oscillator further (placed at 40) and form a higher base.

- Empirically, since 2009, post sharp rallies measuring more than 25% - 30% in the Nifty midcap and small cap indices, the average intermediate correction has been to the tune of 12%-15% over next 5-6 weeks. In current scenario, over past four weeks both indices have corrected 9% and 10%, respectively from August highs. Thus, we expect broader market indices to maintain the same rhythm and endure its relative outperformance against benchmark index Nifty in coming weeks.

- Meanwhile, we believe upside for the Nifty will be capped at 11300 as it is confluence of 61.8% retracement of current leg of decline (11618-10790), placed at 11302 coincided with 50 days SMA, placed at 11298

Source : Equity Bulls

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