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Nifty :22545

Technical Outlook

Day that was…

Indian equity benchmarks endured its losing streak over seventh session in a row tracking muted global cues. Amidist range bound activity Nifty settled monthly expiry session tad below last sessions close at 22545. The market breadth remained in favor of declines with the A/D ratio of 1:4 as Nifty midcap and small cap declined ~1.5%, each. Sectorally, Auto, IT, FMCG underperformed while Metal, Financials relatively outperformed

Technical Outlook

* Nifty started the monthly expiry session on a flat note and witnessed lackluster movement through-out the day wherein Nifty oscillated by 100 points range. Consequently, daily price action resulted into small bear candle, indicating continuation of corrective bias

* The lack of follow through strength above previous session’s high signifies continuation of corrective bias. However, we believe that traders should refrain from creating aggressive short position at current juncture as we anticipate that the ongoing corrective move would find its feet in the vicinity of key support threshold of 22200-21800 zone. Meanwhile, for a meaningful pullback to materialize, index need to decisively close above 23000 mark that would open the door for a pullback rally. Our cautiously optimistic view is backed by following observations:

* A) Past five months 14% correction has hauled the monthly stochastic oscillator in the extreme oversold territory of 11 (lowest since 2002), indicating impending pullback. Historically, average bull market corrections has been to the tune of 16%. With current 14% decline we believe, index is approaching price wise correction

* B) The market breadth has approached the bearish extreme as % of stocks (within Nifty 500 universe) above 50 and 200 days SMA has approached their bearish extreme of 13 and 5 respectively in current corrective phase. Historically, such bearish readings have paved the way for durable bottom in subsequent weeks.

* C) The US 10-year bond yields has corrected 6% for the month and now appears to be forming bearish evening star candlestick pattern on the monthly chart, indicating anxiety around the Tariff appears to be settling down

* D) The US Dollar index has been trading in the vicinity of 107 marks for the second consecutive month. Further weakness would be beneficial for emerging markets.

* E) Brent crude has snapped two months up move and sustaining well below $73 mark, which augurs well for the Indian economy and equity markets.

* F) Further development on ease off in geopolitical worries would bring some stability in equity markets.

* On the broader market front is that, past two decades data suggest, in a bull market phase, Nifty midcap and small cap have a seen average correction of 27% and 29%, respectively. In current scenario, we believe both indices are approaching extremes of their bull market correction as Nifty midcap and small cap have already corrected 20% and 24%, respectively, indicating limited downside going ahead. Hence, focus should be on accumulating quality stocks (backed by strong earnings) in a staggered manner.

* The formation of lower high-low signifies corrective bias wherein strong support is placed around 22200-21800 zone as it is confluence of:

* a) 80% retracement of rally off election low (21281-26277)

* b) Rising trend line drawn adjoining subsequent major lows off Jun-22 of 15183

Nifty Bank : 48744

Technical Outlook

Day that was:

The Bank Nifty concluded the monthly expiry session on a positive note, amid volatility, gaining 135 points. However, the Nifty PSU Bank index underperformed the benchmark index and closed the day on a negative note at 5817, down by 1.09%.

Technical Outlook:

* The Bank Nifty opened the session on a positive note and remained within a tight range of 350 points throughout the day, forming a high wave candle, which signals prolonged consolidation.

* Key point to highlight is that, the index is consolidating in a broader range 49600-48700 and with no significant follow through movement on either side, indicating that the consolidation on is likely to continue, amid volatility. A breakout on either side of the range would dictate the further course of action.

* Structurally, the Bank Nifty has shown resilience by holding above the previous swing low contrary to the Nifty index and witnessed a higher low pattern formation in the vicinity of the lower band of 2 years rising channel, indicating relative strength. Thus, making us believe, that the index would eventually resolve higher and move beyond immediate hurdle of 49600 being previous week high coinciding with 52-week EMA. In the process, the strong support is placed around the swing low of 47800, which is also in the vicinity of 100-week EMA.

* Mirroring the benchmark index, the Nifty Private Bank index witnessed a rangebound action throughout the day, amid volatility which resulted in a high wave candle, indicating prolonged consolidation. Structurally, the PVT Bank index is witnessing slower pace of retracement as over past two weeks it has retraced only 50% of preceding 2 weeks up move (23508-25025), indicating relative outperformance. Going ahead, we believe that the index will continue to resolve higher towards 25000 being previous swing high. Meanwhile, immediate support is placed at 23500, being the recent swing low.

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