Weekly market outlook: Q4 earnings, monthly expiry, US tech companies results, PCE data are top cues to track this week

Markets snapped the four-week winning streak and closed the truncated week lower. The NIFTY50 and SENSEX both declined over 1.5% and ended the volatile week with sharp cuts.

Geopolitical tensions between Israel and Iran, as well as lacklustre earnings from IT giants TCS and Infosys, had a negative impact on investor sentiment. In addition, a significant rise in U.S. bond yields, fuelled by uncertainty over Federal Reserve rate cuts, added to concerns.

Broader markets also mirrored the benchmark peers and witnessed profit booking at higher levels. The NIFTY Midcap 100 index slipped 2.7%, while the Smallcap 100 index slipped 1.3%.

Sectorally, all the major indices closed in the red, with IT (-4.7%) and PSU Banks (-3.6%) declining the most. On the contrary, the volatility index (India VIX) jumped over 16% last week.

Index breadth- NIFTY50

Breadth of the NIFTY50 index remained weak, with the percentage of stocks trading above their 20-day moving average (DMA) falling from a high of 76% to 28%. Similarly, the percentage of NIFTY50 stocks trading above their 50-DMA also fell sharply to 38% from a high of 70%. Both breadth indicators are currently below the 50% threshold, suggesting potential weakness ahead.

In last week's blog we cautioned our readers to be aware of the crucial intersection between stocks trading above the 20 and 50 DMAs (represented by the blue and green lines). As shown in the chart below, the index fell below the critical 22,000 level following this intersection. In the coming week, traders can watch for any crossover or bounce in these breadth indicators. A reading between 50% and 70% will indicate range-bound activity.

FIIs positioning in the index

Foreign Institutional Investors (FIIs) briefly reversed the long to short ratio last week. However, on Monday (15th April) there was a sharp reduction in the net long open interest in index futures. As shown in the chart below, FIIs trimmed the net OI from 33,448 contracts to -5007 contracts. They also added significant short contracts, taking the net OI to over -1,00,000 lakh contracts, leading to a sharp sell-off in the index.

As on 19 April , the ratio of FIIs long to short in index futures stands at 35:65. As you can see from the chart below, the net OI is negative 1 lakh contracts—the highest in the last two months. Going forward, we advise our readers to keep a close eye on the unwinding of these short contracts. Any reversal in this could lead to a short-term bounce in the index.

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The significant increase in short OI by FIIs in the index futures was in line with the selling in the cash market. Last week, the FIIs sold shares worth ₹11,867 crore. On the other hand, domestic institutions bought shares worth ₹9,036 crore, taking the net institutional outflow to ₹2,830 crore.

F&O - NIFTY50 outlook

For the monthly expiry (25 April), the initial open interest (OI) analysis reveals substantial call OI at 22,500 strike, indicating this as immediate resistance. Conversely, significant put options OI accumulated at 22,000 strike, marking it as immediate support. The initial setup of the OI suggests that traders are expecting NIFTY50 to trade between 22,700 and 21,700.

The NIFTY50 confirmed the shooting star pattern on the weekly chart that we identified last week, warning of a potential bearish reversal. We advised our readers to be cautious on this formation. In the last two weeks, the index fell sharply by over 4%. In the end, however, it closed down only 1.6% on a closing basis, thanks to a strong recovery on 19 April, when it rallied nearly 2% from the critical swing low zone of 21,700 and 21,800.

With volatility spiking over 16% last week and earnings season underway, traders should be wary of such sharp price swings, which can lead to significant increases in option premiums. Going forward, the index's critical support area is 21,700-21,800, with resistance at 22,500.

F&O - BANK NIFTY outlook

For the 24 April (Monthly) expiry, options data highlights a substantial call options OI at 48,000 and 48,500 strikes. On the flip side, there is a significant put base at 47,000 and 47,500 strikes. This build-up of open interest suggests that market participants are expecting BANK NIFTY to trade in a range of 48,600 and 45,800.

The BANK NIFTY also confirmed the bearish reversal pattern, the gravestone doji, that formed on the weekly chart the previous week. However, it is important to note that after falling 4% from the previous week's close, the index recovered most of its losses (2%) on Friday (19 April) and formed a hammer candle on the weekly chart, sending mixed signals.

In the coming week, the BANK NIFTY will react to the results of HDFC Bank which was broadly in line with the street estimates. Considering this, the immediate support for the BANK NIFTY is at 47,000, while the resistance remains at 48,200.

📈📉Earnings blitz: With the IT bellwethers out with their fourth-quarter results, the banking sector will be in focus this week, along with index heavyweight Reliance Industries. The oil-to-telecom conglomerate will announce its fourth-quarter results on Monday, 22 April. Other significant results which will be in focus this week are Axis Bank, Hindustan Unilever, Nestle India, Bajaj-Finance, IndusInd Bank, Axis Bank, ACC, Maruti, Shriram Finance, HCL Tech and ICICI Bank.

📅Key data releases in focus: Investors and U.S. Federal Reserve watchers will be looking closely at the March Personal Consumption Expenditure(PCE) report, the Fed's preferred measure of inflation. Also on the radar will be the estimate of first quarter GDP data and jobless claims in the U.S.

💻Spotlight: After the banks, the technology stocks in the U.S. — the magnificent seven Microsoft, Tesla, Amazon, Alphabet (Google) and Meta Platforms will report their first quarter results this week.

📊Stocks in focus: Based on price and OI, Jindal Steel and Max Financial Services were the stocks where long build-up was seen on 19 April. Similarly, to track the OI losers login https://pro.upstox.com➡️F&O➡️Futures smartlist ➡️OI gainers/losers/most active.

📓✏️Takeaway: Both NIFTY50 and BANK NIFTY confirmed the bearish reversal patterns on the weekly chart, yet they managed a significant recovery during the last trading session (19 April) of the week.

Amid escalating geopolitical tensions in the Middle-East, the commencement of the first phase of general elections in India and index heavyweight technology companies in the U.S. announcing their results, traders should proceed with caution during the monthly expiry of both the indices.

The recent surge in the volatility index suggests that traders might experience sharp intraday fluctuations, which could lead to sudden spikes in option premiums.

Currently, the NIFTY50 is trading below its key daily moving averages (20 and 50). Considering the price action, the immediate resistance for the index is at 22,500-mark, while the support is at 21,700. A break on either side on a closing basis will give traders further directional clues.

And we'll keep you updated on the changes and important developments via our morning trade setup blog, which is available every day before the market opens at 8 am.

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