By Anand James
Friday saw VIX closing at the highest point since the early April period when tariff uncertainty had led to dramatic fall in the market. However, the extent of the rise on Friday was under 3% prompting us to check if the pullback attempts could evolve into something more than a dead cat bounce. In fact, small and midcaps saw strong bounce back, with 61% of midcaps bouncing at least 2% from their respective lows. Among the Nifty 500 stocks, more than 65% of stocks pushed above the day’s VWAP (Volume-Weighted Average Price) on Friday, echoing the above sentiment.
Sectoral Cues: Autos set to accelerate; PSU Banks show weakness
The Auto Index has been in a reversal mode since April and continues to exhibit strong momentum. The index is now approaching a breakout above its weekly super trend level. It has already breached the monthly declining channel, and the monthly MACD histogram is showing early signs of exhaustion. All of these point to continued strength in the ongoing rebound. Leading the charge are stocks from the four-wheeler segment – Maruti, Tata Motors, and M&M – along with auto ancillary players like Motherson and Bosch. Together, these names account for approximately 62% of the Auto Index and are expected to drive the index higher, potentially toward the 24,160 level.
The PSU Bank Index has been trading within a declining trend channel since June 2024 and is currently retreating from the channel resistance near 6,650. The weekly MACD histogram indicates exhaustion at higher levels, suggesting limited upside in the near-term. Weekly indicators continue to point toward selling pressure at higher levels. That said, the formation of a daily Marubozu candle on Friday hints at a possible short-term bounce early next week. A decisive close above the 6,650-channel resistance could open the door for a significant upside move, though such a breakout appears unlikely in the coming week. We expect stocks like State Bank of India, Bank of Baroda, Punjab National Bank, IOB, Indian Bank, and Bank of India to come under pressure after an initial bounce. However, Union Bank and Canara Bank may buck the trend and show relative strength.
Meanwhile in case of the Bank Nifty, 25% (3 stocks) of the 12 stocks are trading above their 20-DMA, while only 8.3% (1 stock) is above the 10-DMA. In terms of rebound from intra-day lows, 75% (9 stocks) bounced at least 1%, 41.7% (5 stocks) recovered 2% or more, and 25% (3 stocks) gained 2.5% or more from their lowest levels. All the constituents opened below Thursday’s low in-line with broad market weakness. But 83.3% of stocks pulled back above this level, while 66.7% of the stocks continued to push on and close above the previous session’s close. However, only 41.7% of stocks surpassed Thursday’s open. This is in line with broad market behaviour, but is not conclusive enough to suggest that this was just a dead cat bounce.
Nifty outlook
Even as Nifty closed in the red on Friday, 62% of its constituents bounced at least 1% from their respective lows, suggesting that most of the damage was limited to the downside seen during the gap-down opening on Friday. This is contrary to usual bear moves, where a dead cat bounce is usually followed by a powerful plunge. That another wave of downside did not unfold on Friday is an indication of resilience or that good deal of the cross-border tension has been priced in already. This was not entirely unexpected, given the support offered by the 200-day SMA near 24,050, as well as fibonacci support near 23,870-23950. This sets up the Nifty for a bounce this week with an objective of reaching at least 24,260. However, should 24,150 fail to hold after such an upswing, one can expect a resumption of the downtrend towards 23,670 and perhaps even lower to 23,460.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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