On Friday, the volatility index (VIX) reached its highest closing level since early April, a period marked by significant market declines driven by tariff uncertainties. The increase, while just under 3%, led many to question whether this pullback might signal a genuine recovery rather than a fleeting "dead cat bounce." Notably, small and mid-cap stocks demonstrated a robust rebound, with 61% of mid-caps recovering at least 2% from their lows. Additionally, over 65% of the Nifty 500 stocks surged past that day’s Volume-Weighted Average Price (VWAP), reflecting positive sentiment across the board.

Sector Performance: Autos Show Promise; PSU Banks Struggle

The Auto Index has been on a recovery trajectory since April, gaining notable momentum. Currently, it is nearing a breakout above its weekly super trend level, having already escaped a monthly declining channel. The MACD histogram indicates signs of exhaustion, hinting at sustained strength in the ongoing rebound. Key players driving this rally include Maruti, Tata Motors, and Mahindra & Mahindra, along with auto ancillary firms such as Motherson and Bosch. Collectively, these companies represent about 62% of the Auto Index and are anticipated to push the index towards the 24,160 mark.

• Key Contributors to Auto Index:
  • Maruti
  • Tata Motors
  • Mahindra & Mahindra
  • Motherson
  • Bosch

In contrast, the PSU Bank Index has been trapped in a declining trend since June 2024, currently facing resistance around 6,650. The weekly MACD histogram shows signs of exhaustion at elevated levels, indicating limited short-term upside potential. Despite this, the formation of a daily Marubozu candle on Friday suggests a potential short-term recovery early next week. However, a decisive breakout above the 6,650 resistance seems unlikely. Stocks like State Bank of India, Bank of Baroda, and Punjab National Bank may experience downward pressure following an initial bounce, while Union Bank and Canara Bank might demonstrate relative strength.

Insights on Bank Nifty’s Performance

Within the Bank Nifty, only 25% of the 12 stocks are trading above their 20-DMA, with a mere 8.3% exceeding the 10-DMA. In terms of rebounds from intra-day lows, 75% of the stocks bounced back by at least 1%, while 41.7% recovered by 2% or more. The majority of stocks opened below Thursday’s lows, consistent with broader market trends. However, 83.3% managed to recover above this level, and 66.7% closed above the previous session’s close. This behavior, while reflective of market dynamics, does not firmly indicate a robust recovery.

Nifty Market Outlook

Despite a red closing for the Nifty on Friday, 62% of its constituents rebounded by at least 1% from their lows, signaling limited downside damage from the gap-down opening. This resilience contrasts with typical bear market movements, where a bounce is often followed by further declines. The lack of additional downside suggests that much of the geopolitical tension may already be factored into the market. The 200-day SMA near 24,050 and Fibonacci support levels around 23,870-23,950 are crucial, positioning the Nifty for a potential rise this week, aiming for at least 24,260. However, if the 24,150 level fails to hold post-bounce, a return to lower levels around 23,670 or even 23,460 could be anticipated.

In summary, while the market shows signs of resilience amidst volatility, careful attention to sector performances and key resistance levels will be essential for future predictions.

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