Nifty flat open, rebound late, closed near high; bull candle - ICICI Direct
Nifty :23437
Technical Outlook
Day that was…
Indian equity benchmark continue to reign for the third day on reports that China’s openness for trade talk with US and settled the day on positive note at 23437 up 108 points. Market breadth was in favor of advances, with a strong A/D ratio of 2.5:1, as the broader market outperformed. Small cap indices closed 1% positive. Sectorally, PSU Bank, Private Bank and Oil & Gas were outperformers. Whereas, Auto, Pharma and Health care were the laggards.
Technical Outlook:
* The Nifty opened on a flat note with first-half being in range-bound However, it witnessed a sharp pullback off lows during second-half leading the close near day’s high. As a result, the daily price action formed a small bull candle, indicating followup buying to continue.
* Key point to highlight is that, Nifty reclaimed 200-day EMA for the first time in April and it retrieved the tariff day high along with falling India VIX demonstrates robustness. The current strong recovery led by Bank Nifty as it witnessed a breakout above the seven-month falling trendline and has a weightage of 34% in nifty provides a positive bias that nifty can reclaim 24000 in coming weeks. With current structural improvement we believe index has undergone a base formation supported by positive divergence on the weekly chart, indicates that bottom is in place. Hence, focus should be on accumulating quality stocks to build a medium-term portfolio onset of Q4 earning season. Meanwhile, Nifty in last six session has moved 8%, and reached 80% retracement of the previous fall (23869-21743) Hence, a breather cannot be ruled out and should be consider as a buying opportunity.
* Since 2002, within a structural bull market, price wise maximum intermediate corrections have typically been to the tune of 18% (barring 2004 & 2006). Meanwhile, time wise such corrections last for average 8-9 months. In current scenario, we believe index is approaching price and time wise correction as index has already corrected 17% over past seven months. Historically, buying in such scenario has been rewarding, delivering an average return of 23% over the subsequent twelve months.
* Our positive bias is furth er validated by following observations:
* a) While sailing through the global volatility, Banking index managed to hold March lows and now forming a higher base, highlighting relative outperformance that bodes well for next leg of up move towards 53200
* b) The market breadth has been witnessing positive divergence as Nifty 500 has formed a lower low while % of stocks above 200 days SMA has formed a higher low as currently 28% stocks (Nifty 500 Universe) are above 200 days SMA compared to last month reading of 7%.
* c) The US Dollar index is on the verge of breakdown from two years low of 99.50.
* d) Brent crude oil is hovering around 65 after bouncing from 58 levels.
* e) S&P 500 VIX witnessed sharp decline after recording high of 60, indicating anxiety around tariff uncertainty would settle down soon.
* Mirroring the benchmark move, Nifty midcap and small cap indices have staged a strong rebound after retesting multi-year resistance trend line. Historically, maximum average correction in Midcap and small cap indices have been to the tune of 27% and 29% while time wise such correction lasted for 5 months. Subsequently, both indices have seen 28% returns in next six months.
* We expect volatility to prevail amid ongoing global uncertainty, However, with the strong rebound in prices we revise our support base at 22500 which is 50% retracement of the move from (21743-23368).
Nifty Bank : 53117
Technical Outlook
Day that was :
The Bank Nifty continued its bullish momentum for the third straight session following softer inflation data which has raised expectations of a rate cut and settled the session on a positive note at 53117, up by 1.41% outperforming the benchmark. Meanwhile, the Nifty PSU Bank index outperformed the benchmark and settled the day at 6417 , up by 2 .37 % .
Technical Outlook :
* The Bank Nifty witnessed a gap -up opening and traded with a bullish bias throughout the day where renewed buying interest in the last hour propelled by PSU Bank and Private Bank led a higher closing near sessions high, indicating elevated buying demand . The price action resulted in a large bull candle with small lower wick, indicating acceleration of upward momentum .
* Key point to highlight is that Bank Nifty broke out of an eight - month falling trendline and closed above the 52000 mark for the first time in three weeks . Additionally, the weekly RSI witnessed a falling trendline breakout, signaling revival in upward momentum . Going ahead, all these factors makes us believe that the index is poised for further upside towards 53200 being 80 % retracement of the previous fall (54467 -47702 ) . Meanwhile, the mark of 51500 will provide immediate support on the downside being recent gap area as well as 50 % retracement of current up - move (49910 -53164 ) .
* Structurally, the Bank Nifty is showing resilience as compared to the benchmark as it witnessed a strongest candle in last month post Jun -24 , and is now witnessing a follow through buying demand in current month, indicating revival in upward momentum .
* Outperforming the benchmark index, the Nifty PVT Bank index continued its three -day bullish streak, where it breached its four - month resistance mark of 26100 on a closing basis, indicating elevated buying demand . The index observed higher high -low formation along with a bullish crossover on daily MACD, suggesting acceleration of upward momentum . Going ahead, we expect the index to head towards the all time high of 27300 .
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