Nifty Outlook for June 10: Two things that need to fall in place for the index to breakout

The Nifty bulls owe a profuse amount of thanks to the banking stocks that kept the index afloat during the weekly options expiry session. Despite that move, the index failed to achieve a breakout from the range it finds itself locked in.

The fact that the Nifty even managed a 100-plus point advance was courtesy of the Nifty Bank, yes, but also due to the sharp bounce seen in index heavyweight Reliance Industries from the lows of the session. The stock managed to snap a nine-day losing streak on Tuesday.

So what is plaguing the Nifty from breaking out despite the contribution from the banking stocks and to a certain extent, even Reliance Industries on Tuesday?

A big part of the underperformance of the Nifty has come from IT. After a 7% advance in the first two sessions of June, the index has just taken a nosedive. Despite positive news emerging on the H-1B visa fee front from the US, most of the IT stocks struggled for momentum on Tuesday as well.

The Nifty IT index fell for the fifth straight day on Tuesday. Such has been the reversal that the index is now trading below the levels from where that 7% upmove began across May 29, June 1, and June 2.

The other major factor behind the Nifty underperformance has come from HDFC Bank. Such has been the negative sentiment behind India's largest private sector lender, that even after the positive reforms announced by the Reserve Bank of India on Monday evening, the stock went nowhere on Tuesday. In the Nifty Bank's 1,100-plus-point upmove on Tuesday, HDFC Bank's contribution was close to zero.

HDFC Bank struggled on Tuesday despite most analysts vouching for the fact that the measures announced by the RBI on Monday are most positive for the lender due to its high credit-deposit ratio. Yet, the stock remains close to its 52-week low levels, thereby keeping the Nifty gains in check.

The macro factors are appearing to fall in place with crude prices continuing to drop below the $100 a barrel mark. Yet, there are other reasons that need to fall in place as well for the index to move higher.

What Are The Key Nifty Levels To Watch?

Tuesday's price action has turned the Nifty Bank as the index to watch out for in the near term.

It may only be by just, but the Nifty did manage to make a higher high and a higher low on the daily chart, crossing Monday's high by 13 points and Monday's low by 30.

For Wednesday's midweek session, Tuesday's high of 23,279 will become the first level to cross for the bulls before an attempt is made to sustain above 23,300 levels. At this juncture, with the underperformance of IT, HDFC Bank and the volatile moves seen in Reliance Industries, 23,500 appears distant.

In case all these factors fall into place, then those levels definitely come in to play, but there is only so much heavy lifting that one sector can do, as was evident on Tuesday.

Is The Nifty A Buy Or Sell?

On the daily chart, Nilesh Jain of Centrum has observed the formation of a Dragonfly Doji, a pattern generally considered as a bullish reversal. He expects the Nifty to move to 23,400 levels as long as it sustains above the 23,100 mark on the downside. The next level of resistance, according to him, is at 23,500.

"The underlying trend of Nifty has turned positive from near the supports and more upside is likely in the short term. A sustainable move above the hurdle of 23,500 is likely to open broad-based buying in the market. Immediate support is placed at 23,100," said Nagaraj Shetti of HDFC Securities.

Shrikant Chouhan of Kotak Securities also sees 23,100 acting as a key support for day traders going forward and as long as the market stays above that, a pullback towards the 23,400 - 23,500 levels is possible for the Nifty. On the flip side, a break below 23,100 could force traders to exit their long positions.