After having corrected sharply Nifty 50 has now entered oversold territory and needs to hold above 15400 support zone, which would force a technical pullback for the index, said chartists at ICICI Direct. In a note, analysts said the combination of oversold conditions and price trading in the vicinity of 52 weeks EMA provides the platform for a technical pullback in the coming month for Nifty 50. “In (the) coming weeks, a dip from hereon should be used for accumulating quality stocks at a staggered manner,” they added. Nifty 50 came under the firm grip of bears amid a global sell-off as geopolitical issues led to a surge in crude oil prices and volatility. 

Observing the charts, ICICI Direct said that historically, in the last 16 out of 20 occasions the Nifty 50 index bounced from a 52-week EMA with a temporary breach of not greater than average 5% during panic and generated decent returns over the next three to six months. Analysts expect the trend to be maintained and hence are suggesting investors accumulate quality stocks. 

Nifty shaping up for a pullback

After having dived more than 7% since the middle of February, Nifty 50 is close to the crucial support zone of 15400, which should now act as key support for the index. Holding above 15400 would help the index to undergo base formation and eventually open the door for a technical pullback, ICICI Direct said. On the other hand, the Nifty 50 index is expected to face resistance at 16800. “Only a conclusive triumph above 16800 will open the doors for an extended pullback in coming months,” they added.

Chartists are backing their hypothesis with historical evidence where indices have bounced strongly after a knee jerk reaction to geopolitical tensions. In the last four decades, three major conflicts have been recorded. “In each of these instances, equity markets around the world did witness knee jerk reactions and corrected in the short term. However, if we look at the long term charts, such events have led to the durable bottom formation once anxiety around the event settles down,” ICICI Direct said. 

Bank Nifty in oversold territory

The banking index too has witnessed strong correction and is down 17%. “The recent sharp decline has led to weekly stochastic into extreme oversold territory with a reading of 13, hence a technical pullback cannot be ruled out. However, the index needs to start forming higher high-low in the daily chart on a sustained basis for any meaningful pullback to materialize,” ICICI Direct said. The index has key support around 30500-31000 levels.

Sectors to watch

On the charts, the metal index has witnessed a breakout above the last four month’s range. “. It has seen improvement in both relative and movement term and is currently placed at the outperformer quadrants. We expect metal stocks to outperform,” analysts noted. They further expect the capital goods sector to outperform. IT, Banking and realty stocks are seen as bargain buy opportunities.

Tata Steel, Hindalco, JSL, and Maithan Alloys are top picks among metal stocks. Among capital goods stocks Siemens, BEL, BDL, RHIM, SKF, Thermax, and Grindwell Norton are the top picks.