As expected, 200-week EMA support and easing geopolitical tensions boosted equity momentum - ICICI Direct
Nifty :24050
The Indian equity benchmarks recorded their strongest weekly gains in over five years, snapping a six-week losing streak as a temporary ceasefire led to a significant cooling of Brent crude which fueled the momentum in the global equities. Nifty settled the week at 24050 up 5.9%. Nifty Midcap, Small cap outperformed by gaining 7.5%, each led by rebound in beaten down sectors like Realty, Auto, Defence space, gaining ~10%
Technical Outlook:
* On expected lines, supportive efforts emerged from 200 weeks EMA coupled with ease of in geopolitical tension infused momentum in equities. The weekly price action has resulted into strong bull candle with higher high-low formation, indicating resumption of uptrend
* Index is likely to open Gap-down on back of negative global cues and rise in Brent crude prices. Notably, Nifty has seen 1800 points rally in just 4 sessions that has pushed daily stochastic oscillator in overbought territory (placed at 94), suggesting possibility of couple of days breather at higher levels cannot be ruled out in the upcoming truncated week. However, such breather should not be construed as negative as it would make market healthy and establish the stage for next leg of up move towards 24800 in the coming weeks. Hence, any decline from hereon should be capitalized to accumulate quality stocks backed by strong earnings wherein strong support is placed at 23000, being 50% retracement of recent upmove (22,182-24,074)
* Key point to highlight is that, index has confirmed conclusion of corrective phase by fulfilling prerequisites like close above its last week’s high, sustenance above short-term moving average. In addition to that, faster pace of retracement (as 13 sessions decline entirely retraced back in just 4 sessions), highlights structural turnaround. Hence, formation of higher base amid ongoing consolidation would set the stage for heading towards 24800 in coming weeks
* In the process, volatility would remain elevated on the back of geopolitical development as well as onset of earning season. Hence, we expect stock specific activity to remain in focus.
Our constructive bias is based on following observations:
1.In tandem with historical evidences, index following the template of price and time wise correction. Nifty bounced after 16% and 4 consecutive months decline that have typically triggered strong recovery in subsequent two quarters with average returns of 30%.
2.Historically, median geopolitical correction to the tune of 11% offers portfolio building opportunity that garnered 27% in next 3-6 months
3.The Bank Nifty continues to respect its post-COVID rhythm, arresting intermediate corrections within the 20% threshold.
4.Market breadth seen significant improvement as the current reading of % stocks trading above 50- and 200-days SMA has jumped to 52% and 33% compared to last month reading of 15%.
Key Monitorable:
A.Inflation print
B.Further decline in Crude, US, Dollar Index
C.Start of Q4 earning season
Intraday Rational:
* Trend - Breather after recent sharp up move would make market helathy
* Levels - Sell around 80% retracement of 2 days range.
Nifty Bank :55912
The Bank Nifty Index concluded the week on a strong footing amid ease in geopolitical conflicts. BankNifty settle the week at 55913 up 8.50%.
Technical Outlook:
* Index opened on a positive note and thereafter witnessed breakaway gap in Wednesday session and continued to form bull candle indicating positive bias. The weekly price action resulted into bull candle with higher high higher low, indicating uptrend intact.
* Key point to highlight is that, index has confirmed conclusion of corrective phase by fulfilling prerequisites like close above its last week’s high, sustenance above short-term moving average. In addition to that, faster pace of retracement (as 13 sessions decline entirely retraced back in just 4 sessions), highlights structural turnaround that bode well for trend reversal. Going ahead we expect Index to head towards 57000 levels in coming sessions.
* Therefore, any decline from current level should be utilized as a buying opportunity in stocks with strong Q4 earnings, as strong support is placed at 52800 as it is confluence of Gaparea (52800-54800)and 50% retracement of March-April decline (55554-49954).
* On the broader space, the Nifty PSU Bank has mirrored the benchmark and closed on a positive note. Index has closed above its 100-day EMA, indicating buying demand at elevated support base. A sustain and close above 100-day EMA would accelerate the next leg of upmove towards 9100 being 61.8% Retracement of Feb-April26 decline.
Intraday Rational:
* Trend- Consolidation in range 53000-56000 post sharp rally
* Levels- Sell around 80% retracement of 2 days range.
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