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Nifty - Overextended in Uncharted territory; Correction or consolidation on the cards; Stop Chasing;

It was suggested in our previous technical journal, that the level of 21500 can be achievable in the coming week, and it kissed the high of 21492.30 to make a new high on the indices.

With Indian markets rallying for seven consecutive weeks, all eyes are now on whether bulls can stay in charge for one more week. Positive global as well as domestic cues, including dovish Fed stance, FII buying, and better macro data all indicate that the rally may well continue, but some consolidation cannot be ruled out.

Post Market Weekly Analysis

The Nifty 50 weekly Index opened at 20965.30 touched the high level of 21492.30 and slipped down to 20769.50 before closing at 21456.65. So the benchmark index oscillated in a range of 722.80 points over the previous week's trading sessions, finally closing with a gain of 487.25 points, i.e. in percentage term (2.32%) on a week-on-week basis.

Nifty 50 Index Monthly Chart

The monthly chart showed from last month's closing that indexes are bullish. Last month it surged approximately 1053 points, while in December month it has already gained 1323 points so far. Let us see if it maintains its up-move or takes a rest here for time or price correction.

Nifty 50 Index Weekly Chart

For the previous seven weeks, Nifty has seen only a one-sided upside move, which we have not seen previously. The index is in uncharted territory, where there is no resistance exists. But one way move could be unsustainable. The retracement is imminent now. Either correction or heavy consolidation is required to sustain this move.

The index has run up much ahead of its curve. The short-term 20-week Moving Average is almost 1700 points below the current levels at 19757. The 50-week Moving Average which is widely used to determine the primary trend is placed at 18808 which is over 2600 points from current levels. This makes the current setup extremely dangerous and prone to violent profit-taking bouts if the markets do not take a breather and consolidate. Even the smallest profit-taking has room for a decent retracement from the current levels.

Nifty 50 Index Daily Chart

In the previous trading week, Tuesday and Wednesday saw some retracement but immediately bought into it. FIIs are in full buying spree, due to global reasons. The index is making new highs and technically, forming new highs and new lows. Technically, it is extremely overbought.

Nifty 50 Weekly Fibonacci Chart Status

After seven days of new highs, we are expecting, the index will take a rest, but if Nifty maintains its bullish spree, it can touch 21750, before it can see an extreme correction.

Nifty 50 Index Weekly Chart -with Technical Indicators

RSI Indicator Pattern

The weekly RSI stands at 75.90; it has made a fresh 14-period high. However, it stays neutral and does not show any divergence against the price.

MoneyFlow Indicator

This weekly indicator is at 68.46, which indicates the market has more potential to catch the highest mark of 80.00 or more.

MACD Indicator Pattern

The weekly MACD stays bullish and above its signal line.

The price has closed above the upper Bollinger band; however, while this can be considered bullish, a temporary pullback inside the band cannot be ruled out.

FII's Cash Weekly Activities

The consensus view on Dalal Street is that foreign investors are back with a bang. FIIs (foreign institutional investors) have so far bought Rs 29,700 crore worth of equities in December, after having sold about Rs 75,000 crore worth of equities in the past three months.

FII's Cash Monthly Activities

"FPIs have heavily bought stocks in banking and IT segments. FPI buying is likely to sustain, going forward. India is one of the top investment destinations of FPIs. There is a near consensus now in the global investing community that India has the best prospects among the emerging economies for sustained growth for many years to come.

Outlook for the NIFTY 50 Index for the Coming Week

Markets are in uncharted territory. Over the last two sessions, Nifty has surged over 500 points. In this month, Nifty has risen over 1323 points (+6.57%) in December so far.

Given this kind of gains, the index is trading overbought on both daily and weekly


Getting and staying overbought is a good sign as that shows strength in the up move; securities and indices tend to stay overbought for long when they are witnessing a strong uptrend.

The worrying factor is the near-vertical manner in which the markets have risen and the extent to which they remain overextended.

India VIX:

The previous week India VIX closed at 13.12 from 12.47 Within five trading sessions, it touched a high of 13.348 and a low level of 10.80, It gained on a closing basis by

0.875 (6.55%) on a week-on-week basis.

Support Level for the Coming Week for NIFTY:

The broader support level on the technical chart could be in the range of 21100 followed by the level of 20850 levels.

Resistance Level for the Coming Week for NIFTY:

The broader resistance level on the technical chart could be 21540, followed by 21750 levels.

Crude Oil

The International Energy Agency has said that global oil demand will grow by 1.1 million barrels per day in 2024, up slightly from its previous forecast of 930,000 barrels per day. Crude oil may rise to $75 in the near term. Support is at $70/$67. Since India remains a net crude oil importer, the prices will be closely monitored.

Important Upcoming Weekly Activities

Going ahead, US Q3-2023 GDP numbers, Bank of Japan's policy decision, minutes of RBI MPC meeting, and primary market action will be key to monitor.

US Q3 GDP Growth

Global investors will keep an eye on the final GDP numbers by the world's largest economy for the September quarter of the current calendar year. In the second estimate published in November, the US economy grew at a 5.2 percent rate, higher than its preliminary estimates of 4.9 percent published in October month. This is better than expectations of around 5 percent by most economists, and far better than the growth rate of 2.1 percent recorded in the April-June quarter.

Global Economic Data

Further, new home sales, durable goods orders, personal income & spending, and housing starts data for November from the US will also be watched. Apart from that, the participants will also focus on the United Kingdom's third quarter (2023) GDP numbers as well as inflation numbers for November, and inflation rate in Europe for November.

Technical Analysis

The Nifty 50 Index is maintaining its bullish momentum, marked by a breakout from a flag formation. On the downside, 21200 serves as immediate support, while 21000 is a crucial support level in the event of any pullback.

The technical analysis of the weekly chart shows that the Nifty has staged a strong breakout from a rising channel; at present, the index has ended the second week in a row with gains post the breakout, and in total, it has ended the seventh consecutive week with gains.

That being said, while the index has dragged its supports higher than before, they remain significantly lower as the Index has run too much ahead of its curve, and the possibility of retracement or measured consolidation from the current levels cannot be ruled out.

Reading Current Option Data

The Options data suggested that the Nifty 50 is expected to march towards 22000-22200 zone in the coming weeks, with support at the 21300-21000 area.

But considering the Put-Call ratio at 1.47 levels (the highest in the last 12 consecutive sessions), up from 1.37 in the previous session, some kind of consolidation and retracement can't be ruled out before getting back into action mode again as the index surged more than 6 percent in the current month.

On the Call side, the maximum open interest was visible at the 22000 strikes, followed by the 21500 strike, with meaningful writing at the 22200 strike, then the 22000 strike.

On the Put side, the maximum open interest was visible at the 21300 strikes owned the maximum open interest, followed by the 21200 strikes and the 21000 strike, with writing at the 21300 strikes, then the 21400 strike and 21200 strike.

Summary - Overall

Overall given the kind of extent to which the markets have drifted away from their mean, it is time to get prudent and stop blindly chasing the markets. Instead, the prudent way to utilize every up-move that we get from here is to protect profits on those stocks that are returning decent gains and move to the stocks that are defensive and are showing renewed relative strength.

While staying highly cautious and buying very selectively, the current technical setup also warrants an equal amount of attention to protecting profits at current and higher levels.

A highly cautious outlook is advised for the coming week.

Thanks for reading.

Keep Trading

Stay Invested


Neeraj Bhatia

(Managing Director)    

Disclaimer: I am a National Stock Exchange-certified Technical Analyst and Chartist but not a SEBI-registered analyst, so consult your financial advisor before taking any trade. This technical weekly post-market journal is only for learning purposes and it is downloadable free of cost. The views written here are entirely only my personal views. I am not forcing anyone to follow my thoughts. I do not have any WhatsApp Group ID or Telegram ID related to it.

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