Index gaps up, forms bull candle on easing geopolitical tensions - ICICI Direct
Nifty :23997
The equity benchmark extended their winning streak over fifth consecutive session, buoyed by improved market sentiment amid temporary US-Iran ceasefire. Nifty zoomed 874 points or 3.78% to settle the session at 23997. Market breadth was strongly in favour of advances with a A/D ratio of 8:1. Gains were broad base as all major indices ended in green led by strong recovery in beaten down sectors like financials, auto and realty. India Vix (which gauge the market volatility) recoded sharpest single day decline in a year, down 20%.
Technical Outlook:
* Index opened started the session with a sizable gap and gradually inched upward as intraday pullbacks were short lived. Consequently, the daily price action resulted into bull candle carrying gap, highlighting strong recovery on the sign of de-escalation of geopolitical conflicts.
* The index has fulfilled all the prerequisites for confirmation of conclusion of corrective bias as index has closed above its last week’s high and sustaining well above its short-term moving average. Further, faster pace of retracement, where 8 sessions decline got entirely retraced in just 4 sessions, highlighting structural turnaround that bode well for trend reversal. We expect, Nifty to resolve higher and head towards 24800 in the coming weeks as it is confluence of 200 days EMA coincided with 61.8% retracement of Feb-April decline (26341-22182).
* The current sharp recovery makes us revise support base at 23000 being 50% retracement of current pullback (22182-24025) coincided with last week’s high (22941) which would act as immediate support as per change of polarity concept.
* Nifty staged a strong recovery after 16% correction which hauled most of the momentum, sentiment as well as breadth indicators in bearish extreme readings. Historically, these oversold conditions have offered good entry opportunity for constructing medium-to-long-term portfolios. Hence, accumulating quality stock on dips would be the prudent strategy to adopt.
Our constructive bias is based on following observations:
a) Historically, since 1996, there have been only 4 occasions where index has given a monthly negative close for more than 4 months in a row, post which index has staged a strong recovery in subsequent quarters. Currently, index corrected over 4 consecutive months
b) Such intermediate correction got arrested in the vicinity of long term 200 weeks EMA (barring 2001,2008, 2020), currently placed at 21930
c) Over past 25 years, there have been 8 occasions where bull market correction got arrested within 15-20% range with an average correction of 17%.
d) With the 16% decline (off Feb high of 26341), Nifty has hauled monthly stochastic oscillator in oversold territory (placed at 20). Further, the divergence on the daily chart.
e) On the Bank Nifty front, since Covid there have been six major correction which anchored around 20-22%. With 19% correction already in place amid oversold conditions, indicating that the downside approaching maturity, in line with historical corrective cycles.
f) In case of geopolitical events, past four decades data suggest that price wise median correction matures around 11%. Buying during such a panic scenario has garnered >25% returns in next 6 months.
g) Historically, durable bottoms are formed when the market breadth indicator approaches its bearish extremes. The current reading of % of stocks above 50 and 200 SMA (Nifty 500 universe) rhymes with the historical readings where index formed a durable bottom. Last week, only 15% of stocks were above their 50- and 200-days SMA and Net of daily advance-decline was at 440, signaling capitulated extremes. Post these extremes, the index has delivered a median rally of ~23% in the subsequent 6-12 months period.
Key Monitorable:
* De-escalation of geopolitical tension, Cool-off in crude oil, Start of Q4-FY26 earnings, US Inflation
Intraday Rational:
* Trend – Prior 8 sessions entire decline recovered in past 4 days, indicating faster pace of retracement
* Levels - Buy around 38.2% retracement of 2 days upmove.
Nifty Bank :55704
The Bank Nifty Index concluded the day on a strong positive note tracking positive global cues and fall in crude oil prices. BankNifty settle the day at 55704 up 5.67%..
Technical Outlook:
* Index opened started the session with a sizable gap and gradually inched upward as intraday pullbacks were short lived. Consequently, the daily price action resulted into bull candle carrying gap,(52778-54797) highlighting strong recovery on the sign of de-escalation of geopolitical conflicts.
* Key highlight is that, index has seen faster pace of retracement as 8 session entire decline got retraced in past 4 days, highlighting structural turnaround that bode well for trend reversal. We expect, BankNifty to resolve higher and head towards 57000 levels in the coming weeks. The current sharp recovery makes us revised our support at 52800 as it is confluence of Gap –area (52800-54800)and 50% retracement of March-April decline (55554-49954).
* Further on the weekly timeframe, the stochastic oscillator has witnessed a bullish crossover from the oversold territory is at 30 levels, indicating positive momentum from deeply oversold conditions, with scope for a gradual recovery ahead. Therefore, any dips from current levels should be used as a buying opportunity as strong support is placed around 52,800 being 50% retracement of March-April decline (55554-49954) .
* On the broader space, the Nifty PSU Bank has formed bull candle with breakaway gap highlighting trend reversal and close above 100-day EMA indicating elevated buying demand. Next target is place around 9100 being 61.8% Retracement of Feb-April26 decline.
Intraday Rational:
*Trend- Prior 8 session decline recovered in past 4 days, indicating faster pace of retracement
*Levels- Buy around 38.2% retracement of 2 days upmove.
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