By Milan Vaishnav, CMT, MSTA
As the calendar year 2021 drew to a close, it left some important footmarks in the history of the Indian capital markets. We can fairly say that the year stayed eventful in ways more than one. On one hand, the year saw the completion of an unabated 11,000 point rally in NIFTY and over 24,000 points rally in NIFTY Bank Index, if calculated from the low point that was formed on both these Indexes in March 2020. On the other hand, this very year also saw intermediate tops being marked on both of these indexes.
As evident from the above Relative Comparison chart, NIFTY bank has grossly underperformed the markets during the year. While the headline index NIFTY50 returned 23.79% on a Year-To-Date basis, NIFTY Bank Index returned 13.63% in returns during the same period.
Despite the stupendous rally in both of the indexes, if seen from the lows of March 2020, the year 2021 also saw these indexes marking their intermediate tops. As seen in the above NIFTY Chart (Monthly) there was a formation of a classical candle with a long upper shadow. Its occurrence after a stellar rally hinted at a potential formation of a top. The next candle that followed was a classical Engulfing Bearish Candle which confirmed the levels of 18600 as an intermediate top for the markets.
The NIFTY Bank Index had a similar patterns that were observed. The Index formed a candle with a long upper shadow in October. What followed later was a classical Bearish Engulfing Candle. Both these formations occurred after a significant up move. This led to a formation of an intermediate top at 41829 levels.
WHAT TO LOOK FORWARD IN 2022?
The coming year 2022 will stay a tricky one for the markets. The markets, in general, are unlikely to witness any linear up move in the manner that was witnessed during the period after March 2020 until the last quarter of 2021. However, the undercurrent remains structurally intact.
The S&P 500 and the NIFTY500 Indexes have largely shown a positive correlation on a historical basis. While the S&P500 index hovers around its all-time highs again, the Indian markets are still by around 7.50% from their peak.
As we navigate the year 2022, there are higher chances that the markets may attempt to retest their all-time high levels and also attempt to post incremental highs. However, that would not happen until the levels of 18600 and 41800 offer formidable resistance to NIFTY and Banknifty. On the lower end, the zone of 15700-15400 would be a crucial support zone. Any slip below this zone will push the markets in an secondary downtrend.
On Banknifty, 41800 will continue to offer very stiff resistance; this level may get past but not without struggle. On the lower side, 32750 will be a crucial support. Any violation of this point will invide incremental weakness and a potential reversal to the current trend.
The lead indicators on both these key indexes are neutral; they do not show any divergence and remain neutral to the price. On a broader technical note, we can fairly conclude that the NIFTY and BankNIFTY have larger possibilities to stay in a broad trading range with underlying positive bias through the year 2022.
In the coming year, we are unlikely to see any particular sector dominating the investing landscape. The markets are likely to stay highly stock-specific in nature. However, we will see some relative outperformance from traditionally defensive low beta stocks and some select financial stocks. We can expect stocks like TCS, INFY, ITC, Lupin, STAR, Cipla, and SBI, ICICI, and AXIS Bank relatively outperform the broader markets.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of. EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia. Views expressed are the author’s own. Please consult your financial advisor before investing.)
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