Market Outlook - Technical - ICICI Direct

By Dharmesh Shah, Head - Technical, ICICI Securities

Equity benchmarks entirely recouped last week's losses and recorded highest weekly close in nine months at 11264, up 5.3%. Sectorally, all major indices ended in green led by financials, metal and pharma.

Technical Outlook

The weekly price action formed a sizable bull candle carrying higher high-low and resolved out of past three weeks high 12025, as on expected line, volatility during US election phase offered an incremental buying opportunity. In the process, Nifty witnessed faster pace of retracement as it completely retraced past three weeks decline (12025-11535) in just a single week, signifying structural improvement.

Going ahead, we reiterate our constructive stance of Nifty retesting life highs of 12400 by December (which was discussed in the edition of 26th October), as market panned out on expected lines. In the upcoming week, we expect broader market to witness catch up activity as Nifty midcap index resolved out of two months consolidation.

The aforementioned faster pace of retracement on index has been backed by strengthening of market breadth as currently 72% components of benchmark index Nifty are currently trading above its 200 days SMA compared to last week's reading of 66%. The robust price structure makes us believe, any temporary breather from here on should be capitalised as incremental buying opportunity.

We expect broader market to endure its catch up activity as the Nifty Midcap index has logged a resolute breakout from past two month's consolidation, that consequently helped index to resolve out of long term falling trend line (drawn adjoining January 2018 - February 2020 highs), indicating conclusion of multiyear corrective phase. This structural improvement has been accompanied by significant improvement in the market breadth, as currently average 71% components of Nifty midcap and small cap indices are trading above its 200 days SMA compared to last week's average reading of 65%. The rejuvenation of major uptrend underpinned by strengthening of market breadth makes us confident, broader market would accelerate upward momentum and outperform the benchmark in coming weeks amid ongoing Q2FY21 result season.

Structurally, despite elevated global volatility during the week, Nifty managed to hold key support threshold of 11600 mark and staged a strong comeback, indicating elevated buying demand. As a result, index maintained the rhythm of not correcting for more than a single week since May low (8806), signifying inherent strength. The ongoing structural improvement makes us confident to revise support base at 11800 as it is 61.8% retracement of ongoing up move (11535-12280), at 11820.

Source : Equity Bulls

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