Nifty Outlook for July 23: Oil prices continue to play bummer as supports break

After having played where do we go next for the first couple of days of the week, the Nifty 50 has taken a decisive leg down. Higher oil prices are to blame. Brent is back at $95 and Goldman Sachs is worried that if this disruption lasts longer, they could even go to $120 a barrel in the fourth quarter of the year.

And while the bulls were hoping that the Nifty will finally take a decisive breakout from the higher end of the 23,800 - 24,300 range, they find themselves back to the drawing board and at the lower end of the same range the index has now been stuck in for over a month.

Truth be told, the higher oil prices are not the only factor to blame. Earnings have played their part too. Of course, the good ones have duly been rewarded (Read: Bajaj Auto & TVS Motor, along with Canara Robeco AMC), but the ones that missed, were punished with double the severity (Read: CSB Bank, Bandhan Bank, IndiaMART) and many others.

The bigger reason behind the broader market underperformance were these disappointing results, which have only proven that companies now have very little to zero margin for error as the slightest miss is resulting in severe losses in the stock.

And the action continues on Thursday as well, which happens to be the Sensex weekly expiry as well. Infosys will be among the last of the largecap IT firms to report their numbers on Thursday and the street will hope that there is no tinkering to their guidance, unless it is to the upside. Along with Infosys, Cipla, IndiGo, Meesho, Motilal Oswal, IEX, PVR INOX, Sona BLW among many other broader market names will also be reporting their numbers.

There will also be earnings reactions that the street will react to. HPCL, IndusInd Bank, IIFL Finance, Oracle Financial Services, and many others will be reacting to their numbers that were reported after market hours on Wednesday.

For now, the bulls would be hoping that with 24,000 on the verge of being decisively broken, 23,800 is a level that is now the most important support on the downside. Chartists have warned that a break of 23,800 could lead to a further fall towards 23,600 levels on the downside.

With the index now having made lower highs for three days in a row, the 24,150 - 24,250 zone has now become a resistance, with 24,200 being broken decisively on a closing basis. That will be the first level the bulls would look to conquer on the upside.

"The days of consolidation seem to have been broken on the downside on the daily chart of the Nifty. The RSI is in a bearish crossover, pointing towards weak momentum in the near to short term. On the lower end, the fall might extend towards 23,700 - 23,600 if the Nifty falls below 23,900. On the higher end, near-term resistance is seen at 24,100," Rupak De of LKP Securities said.

Nagaraj Shetti of HDFC Securities also believes that the short-term trend of the Nifty appears to have shifted down and further weakness could drag the index to its next immediate support zone of 23,800 - 23,650. He further added that around the support levels at the lower end, one could expect a bounce in the index again. Immediate resistance is at 24,150, Shetti said.

While the Nifty has broken a key support but continues to remain in its range, the Nifty Bank has broken the 1,000-point range it traded in for the last few sessions. The index has now broken below the 57,500 mark and somehow managed to hold on to 57,000 on a closing basis. The index has not closed below the 57,000 mark since July 8 and the bulls would be looking to hold on to that level and then look at reclaiming the 57,500 mark.

"The RSI is placed at 48, slipping below the 50 mark for the first time in nearly two weeks. The MACD histogram remains skewed to the downside. The immediate resistance is placed at 57,800. On the downside, 56,570 acts as the first support level, while 56,000 may provide a stronger cushion if the first support level is breached," Om Mehra of SAMCO Securities said.