Trade Setup for March 4: Has the Nifty selling finally reaching a point of exhaustion?

At one point on Monday it felt as if the Nifty would even break below the 22,000 level on the downside as it came perilously close to doing so. After 23,500, 23,200, 22,800, 22,500, and 22,200, another much talked about support level for the Nifty was on the verge of breaking, opening the doors for 21,800 levels and ensuring that all the post-Lok Sabha Election result day gains were given up. However, the bulls hung on, at least for now.

The Nifty made an intraday low of 22,004 before reversing over 130 points from those levels. The recovery though, could not prevent a ninth straight day of a red tick for the index. The index heavyweights, Reliance Industries and HDFC Bank ensured that the recovery was kept in check. The former ended at a 52-week low, having now corrected 30% from its peak.

"I've been positive and I've been recommending buy in Reliance for quite some time. I think it's a great opportunity of buying and accumulating Reliance stock at this stage. There will be significant value appreciation from current levels. Of course, there is a great possibility of value unlocking as well going forward when the telecom business moves out in some form or the other, retail business moves out in some form or the other, and maybe the green energy business also moves out in some form or the other. But beyond all that value unlocking, I think fundamentally, the stock needs to be valued at a much higher level compared to where it is. So, I look at about ₹1,500 kind of a price level when markets start stabilising and starts looking at the undervaluation of Reliance closely," Sudip Bandopadhyay of Inditrade Capital told CNBC-TV18.

The bulls would have taken some heart from comments made by market veteran Raamdeo Agrawal of Motilal Oswal Financial Services, who said that the market is close to a bottom but the recovery will not be a V-shaped one. He also mentioned in an exclusive interaction with CNBC-TV18 on Monday that the stocks are in the process of forming a bottom.

Not just the Nifty, even the broader markets, which at one point were back under severe selling pressure, recovered from the lows of the day. The Midcap index recovered more than 1,000 points from the lows to end higher, while the Smallcap index too reversed most of its losses before the close of trade. That begs the question, has the selling intensity across the market reached a point of exhaustion or was it just another dead cat bounce?

Tuesday will be a big day for the global markets as the tariffs announced by Donald Trump on Canada, Mexico and China take effect. Developments on that front will be keenly watched, as will the developments from China's People's Congress, which kickstarts on Wednesday, March 5.

On the charts though, the Nifty has been making lower highs and lower lows for seven sessions in a row and that will be the first task for the bulls on Tuesday, to surpass Monday's high of 22,260. Monday's low of 22,004 becomes the first line of defence on the downside.

Foreign institutions continued to remain sellers in the cash market on Monday but were comfortably outbought by their domestic counterparts.

The Nifty currently is hovering around the 89-Week Exponential Moving Average, which is a significant long-term moving average that acted as a strong reversal point in September 2020, June 2022, and March 2023, said Rajesh Bhosale of Angel One. However, till there is confirmation of a sustained recovery, caution is warranted, but the ongoing decline is gradually offering opportunities to accumulate quality stocks. 22,300 is a key hurdle for now, followed by the bearish gap near 22,450.

Nagaraj Shetti of HDFC Securities said that although the Nifty has shown a minor upside recovery from the lows, the underlying trend remains negative. He expects any upside bounce to encounter resistance at 22,300 levels and only a decisive move above 22,500 will confirm a short-term bottom reversal. A fall below 22,000 will find support between 21,800 and 21,700.

LKP Securities' Vatsal Bhuva said that the Nifty RSI remains in a highly oversold zone of 22 on the daily chart, indicating a possible short-term rebound towards the 400-Day Exponential Moving Average at 22,475. However, the broader trend favours a sell-on-rise approach until a decisive close above 22,600. In case 22,000 is broken on the downside, the index may fall to 21,800 levels.

The Nifty Bank had emerged as an outperformer on Friday by not falling as much as the Nifty did. However, the fall in HDFC Bank, along with most other banking and financial names on Monday shaved off another 200 points on the index, taking it on the verge of breaking the 48,000 mark on a closing basis, which it already did intraday. The index did recover 300 points from the lows to close above the 48,000 level.

Hrishikesh Yedve of Asit C Mehta Investment Interrmediates said that the Nifty Bank has formed a red candle on the daily chart, indicating weakness. The index reversed from its previous demand zone of 47,840, making it an essential support, while 49,000 on the upside remains a key barrier.

The 48,800 - 49,000 range has now become a robust supply zone for the Nifty Bank the RSI remaining below 40 underscores weak buying momentum and amplifies the bearish sentiment, said Om Mehra of SAMCO Securities. The 47,800 level is the final line of defence for the bulls and only a sustained move above 49,000 will lead to a change in momentum.

What Are The F&O Cues Indicating?

Fresh long positions were seen in these stocks on Monday, meaning an increase in both price and Open Interest:

Fresh short positions were seen in these stocks on Monday, meaning a decline in price but an increase in Open Interest:

Short covering was seen in these stocks on Monday, meaning an increase in price but a decline in Open Interest: