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Nifty :22498

Technical Outlook

Day that was…

Indian equity benchmarks closed positive despite weak global cues. The Nifty settled at 22,498, up by 37 points. The market breadth was negative in favor of declines, with an A/D ratio of 1:2, as the broader market underperformed, where the Nifty midcap index closed positive 0.67% and the Nifty small cap index closed on a negative 0.80%. Sector-wise, Realty, Oil & Gas and Financial Services outperformed, while, Private Bank, Nifty Bank and Nifty IT underperformed.

Technical Outlook:

* The Nifty opened gap down (22460-22346) amid weak global cues tracking recession fear in US, despite that buying demand witnessed at lower level making a higher high-low structure, where intraday declines were bought into recovering all the intraday losses and closed positive. As a result, the daily price action formed a small bull candle, indicating buying interest at lower levels.

* A key point to highlight is that, supportive efforts in the vicinity of 50% retracement (21964-22676), indicating renewed momentum. In the current truncated week, sustenance above 20-DEMA would open the door for extended pullback towards 23000 mark. However, failure to do so may result in a range-bound consolidation between 22000-22650, with stock-specific action dominating the trend. In the process, volatility would prevail tracking tariff related development coupled with US as well as in domestic inflation print. Meanwhile, 22000 as a psychological mark would continue to act as key support. Our view of a technical pullback is backed by the following observations:

* a. Over the past three decades, the average drawdown below the 52-week EMA as been 6-7%, followed by >20% returns over the next 12 months. The Nifty is currently ~6% below its 52-week EMA, supporting a potential recovery.

* b. Market breadth recently hit a bearish extreme, as the % of stocks (within Nifty 500 universe) above their 50 and 200 days SMA dropping to 8 and 10 , respectively, during the corrective phase. However, it has now rebounded to 16 and 12, indicating early signs of recovery. Historically, such bearish readings have paved the way for a durable bottom in the subsequent weeks.

* c. The Dollar Index sustaining below 104 while US 10-year bond yields has formed a bearish pattern on the monthly chart, and Brent crude near two-year lows at $70 collectively support emerging markets by easing inflation and boosting sentiment.

* d. The monthly stochastic oscillator is in the extreme oversold territory at 13 (lowest since 2002), indicating an impending pullback.

* On the broader market front, the Midcap and Small cap indices, witnessed supportive efforts in the vicinity of 61.80% retracement in Tuesday’s session indicating buying demand at lower levels. Both the indices witnessed buying demand from the decadelong trendline (Adj Jan 08 high and Oct 21 high) coupled with a positive divergence of the RSI, suggesting that the midcap index could witness extended pullback toward 51500, while the small-cap index may reach 16000 levels. Hence, the focus should be on accumulating quality stocks (backed by strong earnings) in a staggered manner.

* Structurally, after a five-months, 16% decline, the index has now approached the long-term rising trendline (Adj Jun22 low and Mar23 low) amid oversold conditions. The formation of a lower high-low signifies corrective bias, wherein strong support is placed around the 22000-21500 zone due to the confluence of:

* a) 61.80% retracement in the vicinity of 21500 from the rally (16828-26227)

* b) A rising trendline drawn adjoining subsequent major lows off Jun-22 (15183) is placed at 22000.

* c) The 24-month EMA support is placed in the vicinity of 22000.

Nifty Bank : 47854

Technical Outlook

Day that was :

The Bank Nifty continued the bearish momentum from the previous session where it closed the day on a negative note at 47 ,854 , down by 0 .75 % . The Nifty PVT Banking index underperformed the benchmark and settled at 23817 , down by 1 .38 % .

Technical Outlook :

* Bank Nifty witnessed a gap -down opening and observed a range bound action where it traded in a tight range of 350 points throughout the day . However, the major drawdown cased was attributed to the sharp decline cause d in Indusind Bank . The price action resulted in an Doji like candle, indicating elevated volatility at lower levels .

* Key point to highlight is that, the Bank Nifty has retested the lower end of the broader consolidation range of 49600 -47800 for the fourth time in last two month , managing to hold it on a closing basis . Moreover, the daily RSI has reached the multi - support mark of 35 from where it has experienced a bounce on multiple occasions, since over past two months . Going ahead, the mark of 47800 will be important to watchout for, sustainability above which will keep the pullback option open towards the upper end of the broader consolidation range (49600), coinciding with 52-week EMA. Meanwhile, near-term support on the downside is placed at 46800 which is 61 . 8 % retracement of Oct -23 to Sept -24 rally (42105 -54467 ) .

* Structurally, with 12 % correction already in place the index is witnessing a base formation near the lower band of 2 years rising channel, which is also in the vicinity of 100 -week EMA .

* In tandem with the benchmark index, the Nifty PSU Bank index is witnessing a slower pace of retracement on the short -term chart as it has retraced only 50 % of the up move (5530 -5977 ) witnessed from the recent swing low, indicating relative outperformance . Going ahead, a close above the recent swing high of 5977 will be the initial sign of the resumption in upward momentum, while a follow through buying will lead the index to resolve higher towards 6200 mark, being 38 . 2 % retracement mark of previous fall (7248 - 5530 ) . Meanwhile, immediate support is placed at 5530 , being the recent swing low .

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