Nifty Opens Flat, Forms Higher High-Low as Dips Get Bought - ICICI Direct
Nifty :22337
Technical Outlook
Day that was
Indian equity benchmarks snapped a 10-day losing streak, taking a breather after consecutive declines. The Nifty closed at 22,337, up by 1%. The market breadth was exceptionally strong in favor of advances, with an A/D ratio of 6:1, as the broader market outperformed, driven by midcap and small cap gains of ~2.5%. Sector-wise, all sectors closed in the green, with Metal, PSU Bank, and Auto leading the gains.
Technical Outlook:
* The Nifty opened on a flat note and formed a higher high-low structure, where intraday declines were bought into. As a result, the daily price action formed a sizeable bull candle, witnessing supportive efforts in the vicinity of long-term rising trendline, indicating a pause in downward momentum.
* A key point to highlight is that, for the first time in 19 sessions, the Nifty closed above previous sessions high and is on the verge of breaking out of a four-week falling trendline, which would confirm the pause in the downward momentum and open the doors for an upside towards the 22800 level. Meanwhile, 21800 -21500 would continue to act as key support. Our view of technical pullback is backed by the following observations:
a. The US Dollar index breached its 2025 lows and is now sustaining well below 105 mark. A declining US Dollar index bodes well for a pullback in emerging markets.
b. Brent crude oil has breached its October low on an intraday basis and is now sustaining below the $70 mark, which augurs well for the Indian economy and equity markets.
c. The monthly stochastic oscillator is in the extreme oversold territory at 11(lowest since 2002), indicating an impending pullback.
d. Market breadth has approached a bearish extreme, as the % of stocks (within Nifty 500 universe) above their 50 and 200 days SMA has approached their bearish extreme of 11 and 12, respectively, in the current corrective phase. Historically, such bearish readings have paved the way for durable bottom in subsequent weeks.
e. The US 10-year bond yields has corrected ~70 bps January high and has formed a bearish evening star candlestick pattern on the monthly chart, reinforcing the corrective bias.
* On the broader market front, the Midcap and Small cap indices, witnessed supportive efforts from the decade-long 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, the index has been in a five-month correction, declining 16%, and 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 21800-21500 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 : 48490
Technical Outlook
Day that was
The Bank Nifty continued the bullish momentum from the previous trading session where it settled the day on a positive note at 48506 , up by 0 .54 % . The PSU Banking index outperformed the benchmark move by gaining 3 .00 % .
Technical Outlook:
* The Bank Nifty opened the day on a flat note and gradually inched upward, witnessing a follow through buying from the previous session . The daily price action created sizeable bull candle, indicating buying demand at lower level .
* Key point to highlight is that, the index defended the lower end of the broader consolidation rang e, for the third time in past two months, signifying supportive effort at lower level . Additionally, it is on a verge of falling trendline breakout (adjoining the highs of 17th Feb & 19th Feb) . Hence, we expect the Bank Nifty to continue the bullish bias and head towards the upper end of the broader consolidation range of 49600 -48700 , while on a wider perspective a decisive break on either side of the range would dictate the further course of action .
* Structurally, the Bank Nifty is forming a higher base near the lower band of 2 years rising channel and despite the ongoing volatility it has shown resilience by holding above the previous swing low on a closing basis contrary to the Nifty index which is making lower high low . Moving ahead, a follow through buying above previous weeks high (48972 ) would be required for a meaningful pullback to materialize which has been missing since past couple of weeks for the index to move towards the mark of 49600 , being previous swing high, coinciding with 52 -week EMA . On the other side, the near -term support is placed at 46500 mark which is in the vicinity of election days low .
* In tandem with the benchmark index, the Nifty PSU Bank index witnessed a follow through buying from the previous session and outperformed the benchmark index . Additionally, the daily RSI observed a positive divergence, indicating impending pullback . Going ahead, the key monitorable will be whether the index manages to close above the previous weeks high, which has been missing since last 12 weeks . However, a close above the previous week high will fuel the upwards momentum in comingg weeks .
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