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We expect the ongoing correction to mature in the coming 1-2 weeks around the major support area of 10,200.

ICICI Direct.com Research

The equity benchmarks witnessed a sharp rebound on Wednesday after tumbling to their lowest weekly closing level in the last six months as relentless selling pressure across the board saw the index testing 10,200 levels earlier during the week.

We expect the index to continue with the current pullback and test last Friday’s bearish gap area around 10,600 levels in the coming sessions.

The index has seen a sharp decline of more than 13 percent in the last five weeks which has led to an extreme oversold reading around 10 on the weekly stochastic. Hence, a pullback from the oversold territory seen on Wednesday’s session was on the expected lines.

ove Friday’s bearish gap area (10600) and also form a higher high-low for more than two consecutive sessions as it has not extended a pullback for more than two trading sessions during the current corrective phase since August 2018 high of 11760.

Time wise, since the beginning of CY18, each directional leg in the Nifty has lasted for seven to eight weeks. In the present scenario, the index has maintained the rhythm by correcting for the fifth successive week.

We expect the ongoing correction to mature in the coming 1-2 weeks around the major support area of 10,200. The volatility is likely to remain high ahead of Q2FY19 earning season and macro data like IIP, CPI, going ahead.

As both time-wise and price-wise, the index is approaching maturity so we suggest to utilise the current decline to accumulate quality stocks in a staggered manner in the coming weeks.

The index has major support around 10200 levels as it is the confluence of the following technical observation:

a) Trendline support joining the lows of September 2017 (9688) and March 2018 (9952) placed at 10250 levels

b) The 38.2% retracement of the entire rally from December 2016 to August 2018 (7894-11760) placed at 10280 levels.

Capital Ways Investment Adviser

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