Market Outlook - Technical - Dec 18, 2020 - Dharmesh Shah - Head - Technical, ICICI direct

- The risk on sentiment prevailed across global equities as dollar weakness extended. The weekly price action formed a sizable bull candle with a small lower shadow carrying higher high-low over seventh consecutive week, indicating continuance of positive bias as Nifty formed a higher base and eventually resolved above the hurdle of 13600, signifying inherent strength

- The acceleration of upward momentum backed by strengthening of market breadth and revolving sectoral participation makes us confident to revise our target to 14200 by January 2021, as it is confluence of:

a) 138.2% external retracement of entire CY-20 decline (12430-7511), at 14300
b) Implicated target of past two years major trading range 12200-10000, is placed at 14200

- The aforementioned constructive view is further corroborated with following observations/ monitorables:

a) The Dollar index has breached the key support threshold of 90 for the first time since April 2018, auguring well for emerging markets. We believe, continued weakness in dollar index will remain the key monitorable for extension of ongoing rally as that would provide impetus for the Nifty to resolve higher and head towards 14200 in coming weeks

b) The market breadth (which gauge the strength of the market) has subsequently improved as currently all Nifty components are trading above their long term 200 days SMA, signifying durability of current up move

c) The gyrating sectoral traction signifies that the leadership is broadening, which augurs well for longevity of the bull trend

- Over past seven weeks the index witnessed a sharp rally of 2240 points which hauled daily and weekly stochastic oscillator in overbought territory at 92 and 97, respectively). Therefore, we believe subsequent rally from here on would be in zig-zag formation wherein intermittent episodes of profit booking at higher levels can not be ruled out. However, such a temporary breather should be capitalised as an incremental buying opportunity as the broader positive structure remains intact

- Broader market endured their winning streak over seventh consecutive week, which has been backed by sturdy market breadth. Currently, 97% components of midcap and small cap indices are trading above their 200 days SMA compared to November reading of 90, signifying inherent strength

- The formation of higher high-low on the larger degree chart indicates elevated buying demand as intermediate dips were short lived. The rejuvenation of upward momentum makes us confident of revising support base upward at 13400 as it is confluence of: a) 38.2% retracement of current up move (12790- 13773, at 13398 b) Last week's low is placed at 13447

Source : Equity Bulls

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