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Index cools off, broader markets pick up momentum: Pritesh Mehta

Index cools off, broader markets pick up momentum: Pritesh Mehta
February 22
00:28 2021

Pritesh Mehta

Monday’s elation proved to be short-lived for the bulls as the journey thereafter saw index biggies and Nifty go through a retracement move for the rest of the week, resulting in a close below the 15,000 mark.

The tell-tale signs of last week’s trade – choppy behaviour, weak Nifty breadth (around all-time high), profit-booking in recent leaders (i.e. private baking space), decline below three-digit Gann number of 151(00) – all eventually led to a decline. Moreover, momentum in global markets retreated too.

Nifty Breadth has seen a constant decline since February 11 i.e. percent of Nifty stocks trading above 20-DMA has dropped from 78% to 62%, implying profit-booking across several counters within the index.

As far as index’ price action is concerned, the presence of multiple overhead hurdles in the zone of 15,350-15,400 mark could act as a roadblock. While the midpoint of the current three-digit Gann channel (i.e. 14,800) is expected to act as a support. Declining Nifty breadth in up trending market tends to provide long opportunities.

Sectoral rotation continues to be the dominant theme as the private banks are no longer ruling the roost. Thematic sectors are now participating, even broader markets outperformed this week. Nifty PSE index moved higher by 6% on weekly basis.

It shows a breakout post a congestion period. P&F Ratio of Nifty PSE/Nifty shows a follow-through, post a bullish double broadening pattern, implying outperformance of PSE stocks in the near term against the benchmark index. Within the space, BHEL, BEL, BPCL & Concor are standing out with impressive price pattern formations and are likely to propel this index higher.

Despite Friday’s correction of 4.8% in the Nifty PSU Bank index, it notched gains of 10.7% this week and was the highlight of the week as other top sectoral players underperformed. On a standalone P&F chart, it has formed a negative column reversal yet multiple vertical counts of previous bullish patterns are still yet to be achieved (placed around 2,900 levels), implying sustenance of prevailing uptrend.

BankNifty ended lower for the fourth straight session; follow-up action needs to be closely watched, three-digit Gann number of 352(00) is expected to provide support on the downside.

Ratio of Nifty Smallcap versus Nifty has seen a positive follow-through post bullish broadening pattern, implying outperformance of Smallcaps stocks.

Moreover, the broader structure of the ratio chart shows a breakout from a basing pattern. It is now attempting to break above from a pattern re-test zone. Such base formations breakout tends to provide larger moves.

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