Equity benchmark Nifty extended its gains for a second consecutive week, rising 0.75 per cent to close at 24,570 despite geopolitical uncertainties. According to Dharmesh Shah, Technical Head and Vice President at ICICI Securities, the index has established a higher base after reclaiming its 200-day EMA and is hovering near the breakout zone of a four-month consolidation range around 24,600.
Shah believes improving market breadth, sectoral rotation, easing FII selling pressure and strong participation from broader markets support a positive outlook. He expects Nifty to eventually break out of the consolidation phase and move towards 25,100 in the coming weeks, with a medium-term target of 25,500, while maintaining a bullish bias as long as the index holds above the key support level of 23,600.
“Nifty started the week with a positive gap up and oscillated within a narrow ~340 points range throughout the week. As a result, the weekly price action has resulted into “Doji-like candle”, indicating breather after recent sharp up move,” Shah said, adding, “Nifty has established a higher base after reclaiming its 200-day EMA. As a result, index has been hovering around the breakout area of past four months consolidation (placed at 24,600).”
“The formation of higher peak and trough along with ongoing sector rotation signifies broadening of rally that bodes well for eventual breakout from consolidation and open the door for milestone of 25,100 in coming weeks. Eventually, we expect Nifty to extend this move and head towards 25,500 in coming months. Our positive bias remains intact as long as key support threshold of 23600 is held,” he said.
Shah said that his constructive stance is based on the following observations:
- Over past three decades there have been 8 occasions where Nifty has remained below its 200 days EMA for at least four months. The subsequent move, after reclaiming its 200 days EMA has been noteworthy as it delivered average returns of 12 per cent to 19 per cent over the next 3 to 6 months. In the current scenario, the index has reclaimed its 200-day EMA after four months consolidation, History strongly favours the bull.
- Following the Midcap move, Nifty smallcap index reclaimed its all-time high after 20 Months. The breakout from 8 years falling trend line on the ratio chart of Nifty smallcap / Nifty augurs well for acceleration of upward momentum.
- The index is at the cusp of 4 months consolidation breakout. But this breakout looks imminent as market breadth has seen significant improvement since then. Currently 56 per cent of stocks of Nifty 500 universe are trading above their 200 days SMA compared to April swing high of 41 per cent.
- After 13 months relentless FII’s outflow, selling pressure is finally waning. FII’s turned into a net buyer worth Rs. 2,400 cr. To kick start the August month.
Shah said the key factors to watch are the upcoming US and India inflation prints, any positive developments on the geopolitical front and the trajectory of crude oil prices, with softer oil prices expected to support market sentiment.
Here are the stock recommendations by ICICI Direct:
- Buy HAL in the range of Rs 4,860-4,910 for the target of Rs 5,370 with a stop loss of Rs 4,670
- Buy Artemis Medicare in the range of Rs 307-317 for the target of Rs 358 with a stop loss of Rs 284
(Disclaimer: The above article is meant for informational purposes only and should not be construed as investment advice. ET NOW DIGITAL advises its readers to consult their financial advisors before making any investment decisions.)
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