Technical Strategy: Nifty oversold, holding 15400 to revive technical pullback...

Equity benchmarks underwent global sell-off as geopolitical issues led to a surge in crude oil prices and VIX. The velocity of the decline was contrary to our expectation, as the index breached 16800 and drifted to a six month low (15671).

Going ahead, easing of geopolitical situation and cool off in VIX, crude oil prices post outcome of Fed meeting, UP election would help anxiety to settle down. Key support for Nifty is placed around 15400. While, 16800 would act immediate resistance. In coming weeks, a dip from hereon should be used for accumulating quality stocks at a staggered manner, based on following key observations:

a. In the last four decades there have been three major instances of escalations due to armed conflicts. Eventually, such events have led to durable bottom formation once anxiety around the event settles down

b. In past two decades, 16 out of 20 times the index bounced from vicinity of 52-week EMA with temporary breach of not greater than average 5% during panic, followed by decent returns in the following three to six months. In the current scenario, we expect this rhythm to be maintained as the index has slightly breached below 52 week's EMA placed at 16350 along with oversold conditions

c. Meanwhile, sentiment indicator (percentage of stocks below 200-dma) has approached in the vicinity of oversold territory that corroborates with our aforementioned stance

Historically, on the broader market front, a secondary correction has been to the tune of 20% and 30%, respectively, within the framework of a structural bull market. In the current scenario, as both indices have corrected 20% and 23% from all time highs, we expect broader markets to maintain the same rhythm and undergo base formation in coming weeks.

Link to the report

Source : Equity Bulls

Keywords

Technical StrategyReport Nifty ICICIDirect