Index defends 20-day EMA, holds key 23900-24145 gap zone - ICICI Direct
Nifty :23996
Indian equity benchmarks concluded the monthly expiry session on a negative note, weighed down by weak global cues and a surge in crude oil prices. The Nifty settled at 23,995, shedding ~97 points. While the frontline indices struggled, the broader markets showed resilience; the Nifty Midcap and Smallcap indices gained 0.30% and 0.40%, respectively. Sectorally, barring Oil & Gas and Metals, all major indices closed lower, with BFSI and Auto emerging as the primary laggards
Technical Outlook
* Index started the day on a negative note, despite intraday weakness the Nifty managed to defend its 20-day EMA and the crucial gap-area (23900-24,145), suggests a potential base formation is underway. The daily price action formed a bearish candle with a long upper wick, signaling profit booking at higher levels.
* Looking ahead, we expect the index to consolidate within the broader range of 24,500-23,400 while sailing through geopolitical volatility and reacts to the ongoing corporate earnings season.. A decisive close above the 24,500 mark is essential to trigger the next leg of the upward rally.
* We view the current retracement as a healthy consolidation rather than a trend reversal. Investors should utilize dips to accumulate high-quality stocks with strong Q4 earnings as strong support is firmly placed at 23,400, which aligns with the 61.8% Fibonacci retracement of the recent rally (22,182–24,601) and the significant gap area of 23,555–23,154
Our constructive bias is further validated by following observations:
* The formation of higher peak and trough on the weekly chart signifies rejuvenation of upward momentum.
* The current up move is backed by the improvement in the market breadth as the current reading of % stocks trading above 50- and 200- days SMA has jumped to 67% and 40% compared to last month reading of 15%, signaling broadening of rally that bodes well for durability of ongoing up move.
* We expect broader market to relatively outperform the large caps as the ratio chart of Nifty500 vs Nifty 100 has resolved higher and at the cusp of breaking out of past two years consolidation. Such breakout would result into acceleration in Midcap and small caps outperformance going ahead.
* From a global market perspective, the S&P 500's recent breach of the historic 7,000 level and Nikkei and Kospi’s fresh move towards all-time highs signal robust momentum. We expect the Indian markets to witness catch up activity as it has direct co-relation with the global peers
Key Monitorable:
A. De-escalation of geopolitical conflict
B. Q4 earning season
C. US Fed Policy
D. IIP data
E. Further decline in Crude, US Dollar Index
Intraday Rational:
* Trend - Supportive efforts emerging from 20-day EMA, indicating shortterm view remains positive
* Levels - Buy around past 3 days low at 23941
Nifty Bank :55400
The Bank Nifty Index breached its last week low and closed on a negative note tracking weak global cues and settle at 55400 down 1.52%. Nifty PSU Bank relatively underperformed losing 1.9%.
Technical Outlook:
* Index started on a negative note and breached last week low (55750)indicating extended breather below 20-day EMA . The daily price action resulted into bear candle with lower high lower low formation.
* Key point to highlight is that over last five session index has failed to sustain at higher levels, indicating near term correction. Lack of follow through strength indicate continuation of corrective phase wherein strong support placed around 54600,being 38.2% retracement of entire April rally (49954-57456). Further, a decisive close above previous session high (56138) would be required to pause the ongoing decline.
* On the weekly charts stochastic oscillator is in overbought territory with a reading of ~83 levels, indicating possibility of near-term breather that would make the markets healthier and set stage for next leg of up move.
* Therefore, any decline from current level should be used to accumulate quality banking stocks backed by strong Q4 earnings as strong support is now placed around 54600 being 38.2% retracement of entire up move(49954-57456).
* Nifty PSU Bank relatively underperformed forming lower high lower low close below 20-day EMA indicating breather. Sustainability above last week high will be important for revival in upward momentum.
Intraday Rational:
* Trend- Closed below its short-term 20-day EMA with lower high-low formation, indicating corrective bias
* Levels- Sell around 61.8% of 3 days decline (56,791-55,601)
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