Market Outlook - Technical - Weekly View - Dec 11, 2020 - Dharmesh Shah, Head - Technical, ICICI direct

Week that was...

Equity benchmarks extended their northbound journey over sixth consecutive week and scaled to a fresh all-time high of 13579. The Nifty settled the week at 13514, up 1.9%. Broader markets performed in tandem with the benchmark as Nifty midcap and small cap gained around 1% and 2%, respectively. Sectorally, financials and consumption outshone while auto and metal took a breather during the week.

Technical Outlook

The Nifty witnessed follow through strength to last week's brief consolidation (13200-12800) and approached our earmarked target of 13600, on expected lines. As a result, the weekly price action formed a sizable bull candle carrying higher high-low over sixth week in a row, indicating continuance of positive bias.

Going ahead, we believe 13600 would be the key level to watch, as only a decisive close above 13600 would lead to extension of ongoing rally towards 13900 mark as it is the 161.8% extension of the consolidation range (13200-12800), projected from breakout area of 13200, placed at 13847. Failure to sustain above 13600 would lead to consolidation in the 13600-13200 range amid stock specific action.

Key point to highlight is that, index has seen a sharp rally of 2044 points over past six weeks, that hauled daily and weekly stochastic oscillator in the overbought territory (currently placed at 87 and 94, respectively), indicating possibility of a minor profit booking at higher levels as Nifty approached closer to our target of 13600.

The broader markets have extend their gains over sixth consecutive week and closed at 2 years high. Over past six weeks the midcap and small cap indices have seen swift up move of more than 20%. Therefore, possibility of temporary breather at higher levels cannot be ruled out. However, such a breather should be capitalised to accumulate quality stocks as the broader positive structure remain intact. The market breath (which gauge the strength of the market) has remained resilient as currently 94% components of midcap and small cap indices are trading above their 200 days SMA compared to November reading of 90, indicating inherent strength.

Structurally, the formation of higher peak and trough on the larger degree charts (weekly and monthly) signifies robust price structure, that makes us confident to revise support base upward at 13200 as it is confluence of:

a) 50% retracement of current up move (12730- 13579), placed at 13155

b) Last week's low is placed at 13242.

Source : Equity Bulls

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