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Nifty : 24472

Technical Outlook

Day that was…

The benchmark extended corrective bias tracking FII’s persistent selling coupled with mixed earnings. Nifty settled Tuesday’s session at 24472, down 309 points or 1.25%. The market breadth remained in favour of declines with A/D ratio of 1:8 as boarder market relatively underperformed wherein midcap lost 2.5% while smallcap lost 3.9%. Sectorally, all major indices ended in red dragged by financials, auto, metal

Technical Outlook:

* The index accelerated downward momentum on the breach of key support of 24700. As a result, daily price action formed a sizable bear candle carrying lower high-low, indicating extended correction that hauled Nifty near 100 days EMA.

* Going ahead, 24400 would the key level to monitor for the Nifty, as holding above the same would lead to technical pullback towards 25000. On the contrary, failure to hold 24400 would result into extended correction towards 23900 in coming weeks.

* Key point to highlight is that, with past three week’s 7% correction, market breadth indicators have approached their medium term cycle lows as net of daily advance-decline has approached bearish extreme of -480 on Tuesday while % of stocks above 50 days SMA are at 20, indicating oversold reading. Hence, possibility of technical pullback increases at current juncture.

* Historically, in a bull market, 7-10% correction is a common phenomenon. Buying in such scenario have been fruitful from medium term perspective. Hence, accumulating quality large caps would be the prudent strategy to adopt amid ongoing earning season as key support is placed at 23900 as it price parity of election outcome day decline of 9% coincided with August low of 23894

Nifty Bank : 51257

Technical Outlook

Day that was :

Bank Nifty bore the brunt of sell -off in the benchmark . Bank Nifty settled Tuesday’s session at 51257 , down 1 . 4 % . Key point is that, PSU Bank index relatively underperformed by losing 4 %

Technical Outlook :

* The index started the session on a negative note and gradually inched downward as intraday pullbacks were short lived . The daily price action formed a bear candle carrying lower high -low, indicating consolidation amid stock specific action

* Going ahead, we expect Bank Nifty to consolidate in the broader range of 52500 -50000 in coming weeks . Key point to highlight is that the ratio chart of Bank Nifty / Nifty has resolved higher after forming base at long term cycle lows, indicating relative outperformance

* Structurally, since July -23 , on 4 occasions Bank Nifty has maintained the rhythm of not correcting > 9 % and subsequently undergone base formation for next 2 - 3 weeks before unfolding next leg of up move . In current scenario, with 8 % correction already in place, we expect Bank Nifty to form a base and eventually outperform the Nifty

* Contrary to our expectation, PSU bank index has recorded breakdown from six weeks base formation in the vicinity of 200 days EMA, indicating extended correction in PSU Banks

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