The Nifty formed an inside day pattern on Wednesday as the price action remained confined within previous session's high/low range indicating a pause after Tuesday's sharp decline.
The index has breached the price wise symmetry of not correcting more than 200 points during intermediate breathers as observed in the entire up move in CY17.
In the process, it has also breached the lower boundary of the narrow rising channel, which encompassed the entire up move since February 2017 till date.
The violation of the key up trending channel and fall getting bigger in magnitude signals intensified profit booking trend in the market as sentiments have turned cautious ahead of the implementation of GST from July 1, 2017.
In the present scenario, sustenance above 9,500 will be crucial for the index to maintain the broader consolidation between 9,500 to 9,750 levels in the short term.
Only a sustained close below 9,500 will lead to an extended round of profit booking in the near term which will present an incremental buying opportunity.
Structurally, the current breather is seen as a healthy corrective phase within the larger degree uptrend as the index has not posted faster retracement of its last rising segment.
The index has so far taken 16 trading sessions to retrace 61.8% of the preceding nine sessions up move (9341 to 9709). The slower pace of retracement highlights the corrective nature of the current decline and upholds the overall positive price structure.
We believe the current breather will make the markets healthier by hiving off overbought conditions developed after the steady rise over the last five months.
Hence, it presents a good opportunity to enter into quality midcaps and frontlines with strong quarterly earnings.
Tata Steel: BUY| CMP – 521| Target – 575| Stop Loss – 494| Upside – 10%| Time Frame 3 months
Info Edge: BUY| CMP – 986 | Target – 1210| Stop Loss – 895 | Upside – 23% | Time Frame 6 months
Prism Cement: BUY| CMP-119| Target – 133 | Stop Loss – 113 | Upside – 12% | Time Frame 3 months
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