The correction in the Adani group stocks dampened the market sentiment

The volatility continued to remain high amidst all the news flows on the Adani Group. The Banking stocks too witnessed a sharp downfall at the start of the week. However, the indices recovered from the lows in the last hour of the trade on Monday and Nifty ended around 16750 with gains of about a quarter of a percent.

The eventful week saw large swings wherein the Nifty formed a support base in the range of 17400-17350. The index has been trading in a channel since last few weeks and the low mentioned coincides with the support end of the channel. The markets recovered in Friday’s session indicating much of the negative news have now been factored in and the index seems to be heading towards the higher end of the channel. The correction in the Adani group stocks dampened the market sentiment which seems to have reached the extreme end caused by excessive pessimism. Such sentiments usually lead to bottom in the corrective phase and whether the budget day low would mark such bottom needs to be seen. The global markets have been doing well and the Dollar Index seems to be in a downtrend which are positive factors for the equities. However, the major worrying factor has been the FIIs selling as they have been selling in the cash segment and have formed short positions in the index futures segment as well. Their ‘Long Short’ Ratio has reached around 17 percent which is again near to the levels which we saw during the bottom in June 2022. If they start covering their positions from here, that would be a big positive factor for the near term. Now as far as levels are concerned, 17550 followed by 17400-17350 are the crucial support for Nifty while the higher end of the channel is around 18000. A breakout above 18000 could create a gush of buying interest which would then lead to the trended phase on the higher side.
The Nifty Midcap100 index which indicates how the broader markets are doing is poised at an interesting support level. The index had formed a support base in the range of 30000-29900 in September 2022, December 2022 and is now currently trying to form a base in the same range. If it manages to hold this, then this will mark a ‘Triple Bottom’ and hence one should keep a close watch on these levels. The Bank Nifty too has taken support around its ‘200 DEMA’ and 61.8 percent retracement level. Till the major supports are intact, we advise traders to trade with a positive bias and look for buying opportunities on declines.  Certain metal stocks have breached their important supports and have seen short formations. Hence, one should be cautious on this sector for the time being.