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Nifty :23086

Technical Outlook

Day that was…

Equity benchmarks extended correction for the fourth consecutive session tracking weakness in INR and strengthening of Brent crude oil prices along with US Dollar index. As a result, Nifty plunged 345 points to settle Monday’s session at 23086. Broader market underperformed the benchmark by losing ~4% resulting into A/D ratio hit 1:8. Sectorally, all sectors were in red where Realty, Metal and Energy emerged as the worstperforming sectors, contributing to the decline.

Technical Outlook:

• The Index witnessed a gap down opening (23432-23195) and gradually drifted downward after initial failed attempt of pullback. The Nifty accelerated the downward momentum on the breach of Nov low of 23263, as a result daily price action resulted into bear candle, indicating extended correction. Key point to highlight is that daily and weekly stochastic oscillator reached extremely oversold levels (placed at 7 and15, respectively) and India VIX closed near 16 levels indicating volatile sessions ahead.

* The Nifty has breached the key support of 52-week EMA for the first time since Mar-23, hinting next key support 22500 in the near term which is the implicated target of recent consolidation breakdown (24200-23300) coincided with 50% retracement of Oct23 to Sept24 rally (18838-26277). Meanwhile, immediate resistance is now placed at 200 days EMA placed at 23700 above which sustainability would open the door for further pullback.

* The broader market bore the brunt as Nifty midcap, small cap lost 4% to settle session below its 200 days EMA. However, we believe the index is undergoing secondary correction in a bull market which we have observed on 3 occasions since Covid lows, where price wise average correction has been to the tune of 17% while time wise such correction not lasted for 4-5 months. In current scenario with 15% already in place, we believe broader market is approaching price wise and time wise maturity that would result into possibility of base formation post 2-3% correction

* Amidst eventful January month, we expect volatility to remain elevated tracking Q3FY25 earning season as many heavy weight companies are coming out with their earnings (carrying >20% weightage in Nifty), anxiety around new policy measures from Trump government, and Budget expectation that would have bearing on the market sentiment

* On the global macro front, Dollar index is approaching its key hurdle of 112 amid overbought conditions. However, we believe this up move in Dollar index would cool off once the anxiety around Trump policies settles down which would provide cushion to emerging markets.

* On the market breadth front, the net of Advance/Decline ratio approached near its bearish extreme zone on a closing basis as 480 stocks of Nifty 500 universe settled on a negative note. Historically, such a low reading result into pullback in subsequent sessions.

Nifty Bank : 48041

Technical Outlook

Day that was :

The Bank Nifty continued the selling pressure from the previous week, ending Monday’s session on a negative note at 48041 , down by 1 .42 % . Meanwhile, Nifty PSU Bank index relatively underperformed the benchmark by closing negative by 3 .09 % , ending the trading session with a bearish bias

Technical Outlook :

* The Bank Nifty opened gap -down, extending the corrective bias from the previous week . The price action formed a sizeable bear candle, where it breached the lower band of rising channel coinciding with 52 weeks EMA and 50 % retracement of Oct -23 to Sept -24 rally (42105 -54467), indicating inherent weakness .

* Going ahead, bias would remain corrective as long as index maintain lower high -low formation . Only a decisive close above the psychological mark of 50000 for two -three sessions in a row would confirm the pause in downward momentum that would eventually open the door for meaningful pullback, else extended correction where next support is placed at 46800 as it is 61 . 8 % retracement of Oct - 23 to Sept -24 rally (42105 -54467 )

* Key point to highlight is that, past four weeks 10 % decline has hauled weekly stochastic oscillator in oversold territory (placed at 11 ) . Hence, traders are advised to refrain from creating aggressive short position as possibility of pullback activity cannot be ruled out amid oversold conditions .

* Mirroring the benchmark index, the PSU Bank index extended the losses and witnessed a sharp selling to form a sizeable bear candle . Going ahead, 50 % retracement at 5800 of previous up -move(3528 -8053 ) will act as an immediate support mark, while a higher high -low formation would be required for a meaningful pullback to materialize

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