Nifty ended the week a tad above the 13,600-mark with a massive cut of over five percent on a weekly basis.
It was the biggest weekly drop since September 2020 despite being a truncated week. Nifty wiped off more than 1,100 points in the last six trading sessions.
Although it was intimidating, we were not surprised by this sudden fall because the market had hinted towards it and we continuously highlighted those caveats.
Markets were deeply overbought for many weeks, but the real indication came when we witnessed a ‘3-points negative divergence’ in the RSI-smoothened oscillator on the daily chart in all key indices (Nifty, Bank Nifty and Nifty Midcap 50) after clocking their fresh record highs.
We are considerably off record highs and the way charts are shaped up, it does not bode well for the short-term bulls.
Looking at the weekly timeframe, a close below 5-day EMA along with a shooting star pattern on the monthly chart, the Nifty is possibly headed towards the strong support zone of 20-week EMA and 89-day EMA of 13,200 – 13,000.
As the Finance Minister is going to present the Union Budget on February 1, the immediate direction would be decided by the outcome of the event.
Looking at the price structure, we do not expect Nifty to surpass 14,000 – 14,200 before completing its corrective phase.
So, if the market reacts positively after the Budget, 13,800–14,000–14,200 becomes a cluster of resistances and a move towards this should ideally be used to lighten up longs.
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Sooner or later, the Nifty is likely to extend correction towards the levels of 13,200 – 13,000.
Although we have been cautious of late, we believe that a fall towards these supports should be used to accumulate quality propositions in a staggered manner with a broader perspective.
Here's one buy and one sell call for the next 2-3 weeks:
Bandhan Bank | Buy | LTP: Rs 310.95 | Target price: Rs 335 | Stop loss: Rs 296
This stock has gone through strong selling over the past few sessions. It has underperformed its peers in the recent past.
This correction seems to have arrested after reaching its 200-day SMA around Rs 315. Last Thursday, we witnessed a relatively bigger bullish candle which can be termed as a bullish engulfing pattern on the daily chart.
On the following day, the stock consolidated amid broader market correction, indicating the exhaustion of the downtrend.
The way it is placed on the daily and weekly timeframe charts, we expect the stock to give some bounce back in the next few days.
Infosys | Sell | LTP: Rs 1,250 | Target price: Rs 1,175 | Stop loss: Rs 1,293
The entire IT space has corrected considerably over the last 5 – 6 trading sessions.
Due to the recent correction, the IT space has erased all its monthly gains which resulted in the formation of a shooting star pattern on the monthly chart.
Since Infosys is a heavyweight constituent of the Nifty IT index, its price structure is the replica of the same.
The daily chart indicates the extension of the corrective move and hence we recommend selling the stock on a bounce towards Rs 1,255 - Rs 1,265 for the target of Rs 1,175.
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(The author is Chief Technical & Derivatives Analyst at Angel Broking)
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