The Indian equity market experienced a strong rebound on Wednesday, March 5, following a recent sharp decline, as value buying emerged around the key support range of 21,700-22,000. This pullback can be attributed to several factors, including the strength in Asian markets, bargain buying in oversold stocks and value buying in blue-chip stocks. The Nifty index had been extremely oversold, having declined in 18 out of the last 19 trading sessions, making the pullback overdue from the deeply oversold zone. Nifty holding above the support area of 21,700-22,000 can lead to a pullback towards 22,800 levels in the coming sessions. Key resistance on the higher side is placed at 22,800 levels being the confluence of 20 days EMA and recent breakdown area.

Nifty has strong support at 22,000-21,700 levels

1. The long term 100 weeks EMA which has historically acted as key support during major correction is placed around 22,000 levels

2. The price parity with the previous major decline from Sep-Nov 2024 ( 26,277-23,263) as projected from the Dec 2024 high (24,857) signals key support around 21,800 levels

3. A rising demand line support joining the lows of Jun’22 ( 15,183) and Mar’23 ( 16,828) placed at 21,900 levels

4. The confluence of previous major low of Mar & Apr 2024 and key retracement level of previous rally is placed around 21,800.

Factors that support the pullback in the Indian markets in the coming sessions:

1. Breadth Indicator: The market breadth has reached extreme bearish levels, with only 8% of stocks in the Nifty 500 above their 50-day SMA and 10% above the 200-day SMA. Historically, such levels have often marked the beginning of durable market bottoms in the weeks that follow.

2. Oscillators at extreme oversold territory: Nifty is currently placed at an extreme oversold territory with weekly RSI and weekly & monthly stochastic near historical lows of the last 4 years after recent sharp decline

3. US Dollar Index: The US Dollar Index has remained below 108 for three consecutive weeks, and further weakness would support emerging markets.

4. Brent Crude: The sustained price below $75 is positive for India's economic outlook.

5. The US 10-year Treasury yield has dropped to its December low, currently standing at 4.25%. This decrease in yield will have a positive impact on emerging markets like India.