Indian equities slumped sharply, erasing 3 day gains on tensions - ICICI Direct
Nifty :25454
Technical Outlook
Day that was..
Indian equity benchmark witnessed significant downturn, sharply reversing the gains made over the previous three session, amid fresh geopolitical tension. Nifty settled the day at 25,854 down 1.40%. Market breadth turned negative with an A/D ratio of 5:1. Broader market has moved in tandem with benchmark wherein Both Mid and Smallcap index slipped 1.50% each. Sectorally, all indices closed in red wherein Realty, FMCG and BFSI were the top losers.
Technical Outlook:
* Index opened with a positive gap-up, however profit booking emerged near the 80% retracement of the prior decline (26009- 25444). The daily price action has formed a sizeable bear that has engulf prior three session range, reflecting near-term profit booking and heightened volatility at higher levels.
* However, on a broader structural perspective, the index remains in a consolidation phase. Over the past twelve-sessions of corrective action it has retraced only ~50% of the preceding ~1600 points rally achieved in just two session, highlighting relatively slower pace of retracement. This measured pullback, indicating that the ongoing decline is more of a time-wise consolidation rather than a reversal of the prevailing uptrend. Hence any decline from current level should be used as “buy-on-dips” strategy wherein focus should be on accumulating beneficiaries of trade deal of India with US & European Union, as strong support is placed around 25,200 being 200-day EMA.
* On the broader market front, both Nifty mid and Smallcap has mirrored the benchmark and witnessed profit booking from elevated levels. However, structurally index firmly sustaining above the 52 weeks EMA that has been held firm since past nine months while small cap index witnessed sharp pullback from lower band of six months falling channel. The improving market breadth would result into broadening of the ongoing rally.
* Market breadth has been witnessing improvement, as the percentage of stocks trading above their 50 days SMA has bounced from bearish extremes of 15% to 43% levels, while percentage of stocks above 200-day SMA within the Nifty 500 universe enhanced to 36%. Historically, such contractions in breadth have preceded durable market bottoms, with extreme bearish readings near 15%.
Key Monitorable:
* US GDP data
* Brent Crude: Amid fresh geopolitical tension crude has moved upward and hovering around falling trendline resistance of $72 range. Only a decisive close above $72 would fuel the momentum for next leg of up move
Intraday Rational:
* Trend- consolidation range 25400-26000
* Levels- Sell around 61.8% retracement of yesterday decline(25877- 25402)
Nifty Bank :60740
Technical Outlook
Day that was:
Bank Nifty snap its three days winning steak and ended 1.4% lower at 60740 levels due to geopolitical risk. Nifty PSU Bank also closed 1.4% down in line with benchmark.
Technical Outlook:
* Index opened on a positive note; however, profit booking emerged near its previous swing high (61,700) . The daily price action has formed Bearish Engulfing candlestick near All time High, indicating pause in upward momentum.
* Key point to highlight, index retraced 61.8% of prior 3 days rally, while sustaining firmly above the 20-day EMA, signaling healthy profit booking after sharp upmove. Going ahead we expect Index to consolidate in the range 59700- 61700 in coming weeks.
* Volatility is likely to remain elevated because of geopolitical uncertainty, therefore any corrective declines from current levels should be viewed as buying opportunities as strong demand zone is identified near 59,700, being 50-day EMA and 61.8% retracement of the current up move (57,783-61,674).
* Meanwhile, the Nifty PSU Bank also formed Engulfing bear at All time high signaling profit booking at higher levels. Going forward, the index is expected to consolidate in the range 9600-9100.The 20-day EMA and 38.2% retracement is placing around 9100 levels.
* Intraday Rational:
* Trend- Higher high-low pattern for third consecutive session
* Levels - Sell around 61.8% retracement of yesterday decline(61567-60616).
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