Nifty below 17290 may trigger multi-month bear run; Bank Nifty shows signs of recovery above 40700

Nifty below 17290 may trigger multi-month bear run; Bank Nifty shows signs of recovery above 40700

By Anand James

A tightly fought expiry day with a whopping 40 crore contracts being traded, majority being along index options, and with 17,800 being defended, despite looking to collapse at any moment of the day, gave no indication about the drama that was set to unfold on the next day after adverse report on Adani group shares triggered a meltdown in broad market.

Though only 32% of Nifty 50 stocks have slipped below their respective 200DMA, 62% of the small cap index stocks have fallen below this key metric, bringing Nifty’s 200DMA of 17,290 into picture as a near term support. Penetration of the same could lead to multi month bear market potentially aiming 16,500-15,500.

However, Friday’s turn of events presents an opportunity in the near term though. Firstly, we have slipped over 1400 points from the record peak, and are at the 3 SD boundary, which suggests that an end to downtrend is nearing. Secondly, Nifty PCR (put call ratio) is at 0.67 after Friday’s carnage, and incidentally, the last time we had negative close and sub-1 PCR ahead of the Union Budget, we saw a 4% gain in the 3 days post budget. Bank Nifty, meanwhile, will take solace from the formation of a morning star candlestick pattern in the hourly candle, hinting at early signs of a recovery move, but will require a push beyond 40,700, to shrug off bears. Bank Nifty’s 200DMA is now placed at 38,720.

(By Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)