Index dips early, rebounds 300 pts from 20-day EMA support - ICICI Direct
Nifty :23842
The Indian equity benchmarks concluded the session on a negative note tracking spike in crude oil prices. Nifty settled the day at 23842 down ~204 points. Market breadth was in favor of decline with an A/D ratio of 1:2. Nifty Midcap, Small cap relatively outperformed the benchmark by declining 0.50%, each. Sectorally all indices closed in red wherein Auto, Oil&Gas and IT were the top losers.
Technical Outlook:
* Index started the week on a negative note, however supportive efforts emerged near 20-day EMA and recovered ~300 points from lower levels. As a result, daily price action resulted into bull candle carrying higher high-low intraday structure, indicating buying demand from short-term moving average.
* Index is set to open on a positive gap up amid cool off in crude oil price and development on de-escalation in geopolitical conflicts. Key point to highlight is that Over past 3 days index has retraced only 23.6% retracement of its prior 4-day’s ~1800 points upmove, indicating slower pace of retracement. We believe the current fall is a part healthy consolidation that will further improve the structure for the next leg of upmove towards 24800 in the coming weeks. Hence, any decline from current levels should be used as buy on dips strategy as strong support is placed at 23000, being 50% retracement of recent upmove (22,182- 24,074). Wherein focus should be on accumulating quality stock backed by strong Q4 earning
* Key point to highlight is that, index has confirmed conclusion of corrective phase by fulfilling prerequisites like close above its last week’s high, sustenance above short-term moving average. In addition to that, faster pace of retracement (as 13 sessions decline entirely retraced back in just 4 sessions), highlights structural turnaround. Hence, formation of higher base amid ongoing consolidation would set the stage for heading towards 24800 in coming weeks
* In the process, volatility would remain elevated on the back of geopolitical development as well as onset of earning season. Hence, we expect stock specific activity to remain in focus.
Our constructive bias is further validated by following observations:
1.In tandem with historical evidences, index following the template of price and time wise correction. Nifty bounced after 16% and 4 consecutive months decline that have typically triggered strong recovery in subsequent two quarters with average returns of 30%.
2.Historically, median geopolitical correction to the tune of 11% offers portfolio building opportunity that garnered 27% in next 3-6 months
3.The Bank Nifty continues to respect its post-COVID rhythm, arresting intermediate corrections within the 20% threshold.
4.Market breadth seen significant improvement as the current reading of % stocks trading above 50- and 200-days SMA has jumped to 52% and 33% compared to last month reading of 15%.
Key Monitorable:
A.Further decline in Crude, US, Dollar Index.
B.Start of Q4 earning season.
Nifty Bank :55605
The Bank Nifty Index concluded the day on a negative amid global cues and rise in crude oil prices conflicts. BankNifty settle the day at 55605 down 0.55%.
Technical Outlook:
* Index opened the day with gap-down action and thereafter recovered partially after rebounding taking support at 20- day EMA. The daily price action resulted into bull candle with higher high-low intraday structure, indicating supportive efforts at lower levels.
* Index is likely to witness a gap up opening tracking firm global cues amid positive development on geopolitical conflicts that resulting into decline in crude oil prices. Key point to highlight is that, index rebounded after taking support at short term 20-day EMA and 38.2% retracement of current up move(51950-55970) indicating inherent strength. We believe the current fall is a part healthy consolidation that will further improve the structure for the next leg of up move towards 5700 in the coming weeks. Hence, any decline from current levels should be used as buy on dips strategy as strong support is placed at 52800, as it is confluence of Gaparea (52800-54800)and 50% retracement of March-April decline (55554-49954). Wherein focus should be on accumulating quality stock backed by strong Q4 earning.
* On the broader space, the Nifty PSU Bank relatively underperformed the benchmark and closed on a negative note down 0.73%. Index is consolidating above its short term 10-day EMA, indicating buying demand at elevated support base. A sustain and close above 100-day EMA would accelerate the next leg of upmove towards 9100 being 61.8% Retracement of Feb-April26 decline.
Intraday Rational:
* Trend- Shallow retracement after last week’s sharp up move signifies robust price structure
* Levels- after gap up opening, buy the dips around previous session high.
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