Trade Setup for March 4: Is Nifty's selling momentum reaching exhaustion?

On Monday, it appeared that the Nifty index might breach the 22,000 level, after testing various support levels, including 23,500, 23,200, 22,800, 22,500, and 22,200. This drop led to concerns that the index could head towards 21,800, potentially erasing all post-Lok Sabha Election result gains. However, despite the intense selling pressure, the bulls managed to hold ground, at least temporarily.

The Nifty hit an intraday low of 22,004, only to recover by over 130 points. Despite this recovery, the index still marked its ninth consecutive day of decline. Heavyweights like Reliance Industries and HDFC Bank prevented a stronger rebound. Reliance, in particular, saw a 52-week low, having corrected by 30% from its peak.

Raamdeo Agrawal, market veteran from Motilal Oswal Financial Services, offered some optimism by suggesting the market is nearing a bottom, though he cautioned that the recovery would not be a quick rebound. He also mentioned that stocks are in the process of bottoming out.

The broader markets, too, saw some respite. The Midcap index surged over 1,000 points from its lows, and the Smallcap index also recovered much of its earlier losses. This raises the question: is the selling finally losing steam, or is this just another dead cat bounce?

Global markets will be closely monitored on Tuesday, especially with tariffs imposed by former President Donald Trump on Canada, Mexico, and China taking effect. Additionally, the opening of China's National People's Congress on March 5 will likely influence market sentiment.

From a technical standpoint, the Nifty has been in a downtrend, making lower highs and lows for seven sessions in a row. The bulls' first challenge will be to surpass Monday's high of 22,260. On the downside, 22,004 remains a critical support level.

Foreign institutional investors (FIIs) remained sellers in the cash market on Monday, but were outpaced by domestic institutional investors (DIIs).

The Nifty is currently hovering near the 89-week Exponential Moving Average (EMA), a significant long-term moving average that has acted as a reversal point in previous instances (September 2020, June 2022, and March 2023). While caution is still warranted until a sustained recovery is confirmed, the ongoing decline presents opportunities to accumulate quality stocks. Resistance is seen at 22,300, followed by a bearish gap near 22,450.

Nagaraj Shetti of HDFC Securities cautioned that while the Nifty showed a minor recovery, the overall trend remains negative. He sees 22,300 as an immediate resistance, and only a decisive move above 22,500 will confirm a potential short-term bottom. Should the Nifty fall below 22,000, support levels are expected at 21,800 and 21,700.

Vatsal Bhuva of LKP Securities highlighted that the Nifty's RSI is in an oversold zone (22 on the daily chart), suggesting a possible short-term rebound to around the 400-day EMA at 22,475. However, the broader trend still favors a "sell-on-rise" strategy unless the index closes decisively above 22,600. A break below 22,000 could send the Nifty to 21,800 levels.

Key Levels for Nifty:

Immediate Resistance: 22,300

Next Resistance: 22,450

Support: 22,000 and 21,800-21,700

Nifty Bank Outlook: The Nifty Bank showed some relative strength on Friday but faltered on Monday. A decline in HDFC Bank and other banking stocks pulled the index closer to the 48,000 mark, although it managed to recover slightly. Hrishikesh Yedve from Asit C Mehta Investment Intermediates noted a red candle on the daily chart, indicating weakness. Key support for the Nifty Bank is at 47,840, with resistance around 49,000.

F&O Market Cues:

Nifty 50 March futures saw a slight increase in open interest (OI), suggesting minor bullish sentiment.

Nifty Bank March futures saw a reduction in OI, indicating a bearish outlook.

The Nifty Put-Call Ratio (PCR) has improved slightly, indicating a more balanced sentiment.

Stocks to Watch:

UltraTech Cement: Showing a price increase of 2.10% with an OI rise of 7.37%.

KPIT Tech: Gaining 1.03% with a 6.22% increase in OI.

M&M: Up by 1.10% with a 4.98% OI increase.

Titagarh Rail: Witnessing fresh short positions, with a decline of 3.30%.

F&O Sector Focus: The highest OI additions on the Call side for March 6 expiry are between 22,100 and 22,400, indicating short-term resistance levels. On the Put side, 21,900 and 22,000 have seen additions, highlighting potential support zones.

Key Stocks in Focus for Tuesday:

IEX: Electricity volume up 9% YoY, with a 14% increase in Day Ahead Market volume.

IndiGrid Investment: Secures a ₹195.2 crore project from REC Power.

ASK Automotive: Signs a new agreement for Cast Wheel production.

RBL Bank: Under investigation by GST authorities at three locations.

NAVA: Secures an extension for its Zambian lithium exploration project.

Disclaimer: The views expressed by investment experts are their own. Always consult a certified expert before making investment decisions.