Market Outlook - Technical - Oct 3, 2020 - ICICI Securities

Dharmesh Shah, Head - Technical, ICICI direct

Equity benchmarks staged a strong comeback after last week's decline, supported by buoyant global cues. The Nifty ended the week at 11417, up 367 points or 3.3%. Broader markets performed in tandem with the benchmark as Nifty midcap, small cap rose over 3%, each. Sectorally, all major indices ended in the green led by financials, IT and metal.

Technical Outlook

- The weekly price action formed a significant bull candle confined within last week's large trading range (11535-10790), as Nifty recouped most of last week's losses after witnessing elevated buying demand from 200 days SMA placed around 10800. As a result, index maintained the rhythm of not correcting for more than 11%, as intermediate corrections to the tune of 11% have formed a part of the larger degree uptrend and presented an incremental buying opportunity, since March.

- Going ahead, we expect index to resolve above upper band of consolidation (placed at 11500) and gradually retest the recent highs of 11800 in October. In the process, we expect broader market to endure its relative outperformance. Our constructive view on the market is based on following key observations:

a) We believe, the market momentum is in strong hands, as the market leaders are back to their recent highs despite last week's sharp decline, indicating inherent strength

b) Nifty has retraced 61.8% of preceding 19 sessions decline (11794-10790) in just five sessions, at 11410. The ongoing faster pace of retracement signifies robust price structure, auguring well for next leg of up move

c) The bank Nifty (which carries 33% weightage in the benchmark index Nifty) has formed a higher high-low (on a closing basis) after four weeks decline, indicating conclusion of downward momentum. Thus, follow through strength in banking stocks would help Nifty to resolve higher in coming weeks

- We expect broader market to continue with its relative outperformance and retest recent swing highs in coming weeks, as last week index staged a strong comeback after forming a higher base above its 50 days EMA, backed by rejuvenating market breadth (which highlights strength of the market) as currently average 65% stocks of Nifty midcap and small cap indices are above 200 days SMA compared to last week's reading of ~55%, that bodes well for durability of ongoing up move.

- The elevated buying demand supported by strengthening of market breadth makes us confident to revise support base upward at 11100 as it is confluence of 61.8% retracement of current up move (10790-11429), at 11034 coincided with last week's low of 11100

Source : Equity Bulls

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