According to ICICI Securities' Technical Head Dharmesh Shah, the Nifty has marginally settled around the four-month rising trend line which has been majorly held despite host of negativities around geopolitical concerns. The index settled at 24,175.65 last week, hovering in a broad 23,800–24,700 band before closing at 24,175.65. From a short-term perspective, defending past two weeks' low of ~24,000 would keep pullback options open towards 24,600. Failure to defend this level would result in extended correction with strong support placed around 23,600 as it represents the 50% retracement of April-August rally. The index is likely to open gap-down on back of global cues and rise in brent crude prices, with volatility expected to remain elevated tracking MSCI rebalancing.
As reported by ICICI Securities, the Nifty consolidated in a narrow range throughout the week and settled on a flat note, resulting in a high wave candle carrying higher high-low, indicating prolonged consolidation. The index has been confined in the entire March month's trading range of 24,989-22,284 for the past five months, which is a rare occurrence of prolonged range contractions that systematically set the stage for a directional move. Shah believes that as long as the index holds the swing low of 23,600, the buy-on-dips structure remains intact, with the current up move having laid the foundation for a secular up move.
According to the technical analysis, sector leadership shifted seamlessly to Pharma and Metal, while IT staged a strong rebound. On the flip side, FMCG continued to underperform the benchmark. The smallcap index has logged an impressive ~35% rally off April low and reclaimed its all-time high after 18 months, with historical data suggesting this is the initial leg of multi-year secular bull run rather than an overextended technical move. Shah believes the current up move has laid the foundation for a secular up move, with the bullish outlook anchored by major corrections of ~35% or more historically marking the beginning of fresh market up-legs rather than the end of broader bull cycles.
Analysts suggest bullish option spreads for rebounds while maintaining caution against a potential 23,900 break. Specific stock recommendations include HEG and Laurus Labs as buy opportunities with specific targets and stop losses. Other stocks showing positive chart setups include Glenmark Pharmaceuticals and Shipping Corporation of India. Newgen Software and Elgi Equipments also present buying opportunities with improving technical indicators. The recent 12 weeks of consolidation resulted into mean reversion wherein it retraced less than 50% of the prevailing upmove, highlighting underlying strength, with Shah recommending buying in the range of 19,700-20,320 for the target of 22,740 and maintaining a stoploss of 18,730 for the broader market.
