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Nifty - Weekly Consolidation Range 21300-21940; Higher India VIX may disrupt higher moves

The Nifty 50 Index made a new all-time high in the previous week and reached 21801 levels. The stock market rebounded strongly and reached a new all-time high in the last week of 2023, despite a minor setback the previous week.

This was due to positive global cues, renewed buying by foreign institutional investors, easing of the Red Sea disruption, and rising expectations of rate cuts by the US Federal Reserve, which cooled down inflation.

Additionally, there was anticipation of political stability in 2024, which further fueled the rally.

However, in the first week of 2024, the market may experience some consolidation due to the sharp upswing in the past few days. Nevertheless, the overall outlook remains bullish, and the focus will be on manufacturing and services PMI numbers globally, FOMC minutes, US unemployment data, and monthly auto sales.

Post Market Weekly Analysis

The Nifty 50 weekly Index opened at 21365.20 touched the high level of 21801.45 and slipped down to 21329.45 before closing at 21731.40. So the benchmark index oscillated in a range of 472 points over the previous week's trading sessions, finally closing with a gain of 382 points, i.e. in percentage term (1.79%) on a week-on-week basis.

Nifty 50 Index Monthly Chart

Till now the monthly chart has been super bullish, and the volumes are comparatively higher than in previous months. As per historical data, January month is always sluggish in trades, we need to see, if the same happens this year or not. Till candles stay above the channel, we are bullish on the index.

Nifty 50 Index Weekly Chart

Once again the Nifty Index made a new all-time high the previous week. Because the index is in unchartered territory, we can not see any resistance, but an immediate high level would become the immediate resistance for us. In this case, 21801, will be the immediate resistance. To go further up, the index needs to break the high point decisively. Weekly, we can see the range of 21300 to 21940

Nifty 50 Index Daily Chart

The daily index has shown an indecisive Doji candle, which means if we cross above 21801, only then we will be bullish else if we break down the levels of 21676, then we can go down up to the range of 21300-21500

Nifty 50 Weekly Fibonacci Chart Status

Price appreciation with a decreasing volume of weekly candles can bring correction or consolidation. 22000 is a big resistance for the time being. The relentless buying by FIIs has brought euphoria to the market, but it can be continued only if the immediate resistance can be broken through cash buying.

Nifty 50 Index Weekly Chart -with Technical Indicators

RSI Indicator Pattern

The weekly RSI is 76.30 While it has marked a new 14-period high and stays overbought, it also remains neutral while not showing any divergence against the price.

MoneyFlow Indicator

This weekly indicator is at 75.90, which seems a very limited upside. And it can be considered on the higher side, which gives the signal of consolidation or correction ahead.

MACD Indicator Pattern

The weekly MACD stays bullish and remains above its signal line.

FII's Cash Weekly/Monthly Activities

Foreign institutional investors increased buying interest significantly in December to nearly Rs 32,000 crore, the biggest monthly buying since February 2021, while the domestic institutional investors picked Rs 12,900 crore worth of shares during the same month. They both helped the market report record highs and post 8 percent gains during the month. The fall in the US 10-year bond yields to 3.8 percent from 4.9 percent in the last two months following increasing expectations for the fed funds rate cut in 2024 caused the surge in FII inflow.

"Since 2024 is expected to witness further declines in US interest rates, FPIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run-up to the General elections.

FII positions in the previous week's trading sessions in Options & futures

Outlook for the NIFTY 50 Index for the Coming Week

The technical analysis of the weekly charts shows that the breakout that the Nifty Index achieved from the rising channel when it crossed 20800 levels remains very

much intact.

However, it is also observed that the markets have deviated much away from its mean. The fastest 20-week Moving Average is at 19964 which is 1761 points below the current levels. The 50-period Moving Average stands 2778 below current levels. This shows that the markets have run ahead of their curve and stand over-extended on the charts. The slightest of the mean-reversion can lead to some corrective retracement in the markets.

India VIX:

The previous week India VIX closed at 14.50 from 13.70 Within five trading sessions, it touched a high of 16.47 and a low level of 13.70, It gained on a closing basis by

0.7950 (5.80%) on a week-on-week basis.

It is worth noting that the fear index, India VIX, climbed 5.8 percent during the last week to 14.50 levels. Since November, it has jumped 33 percent.

Support Level for the Coming Week for NIFTY:

The broader support level on the technical chart could be in the range of 21500 followed by 21360 levels.

Resistance Level for the Coming Week for NIFTY:

The broader resistance level on the technical chart could be 21850, followed by 22000 levels.

Crude Oil

The market participants will also keep an eye on oil prices, which fell sharply in November and remained rangebound in December. The weekly charts indicated that the oil prices seem to have formed a bottom for the time being, during December as the prices rebounded from around $72 a barrel levels and remained a tad below the 200-week EMA (exponential moving average). Further, even in the past months of the year, the prices often tested $70-72 a barrel but did not break the same.

Having stabilized below $80 a barrel is a major positive for oil importing countries like India, and hence, acted as a strong supportive factor for the equity markets because it reduces the fiscal pressure. Brent crude futures, the international oil benchmark, dropped 2.2 percent during the past week to settle at $77.04 a barrel. For the year, the prices plunged 10.3 percent after a sharp rise in the past two years.

"We expect oil prices to slide as supplies from the non-OPEC nations have been on the rise in the past few months and US production is running near an all-time high of 13.3 mbpd. Production cuts by OPEC+ have proved insufficient to prop up prices, with the benchmarks declining nearly 20 percent from their highest level this year.

Important Upcoming Weekly Activities

Auto Sales

The new year will start with the monthly auto sales data scheduled to be released by the original equipment manufacturers for December 2023. Hence, auto stocks will be in focus. Most experts expect double-digit growth in 2-Wheeler Sales but flat-to-moderate growth in passenger, commercial vehicle, and tractor segments on a yearly basis.

Domestic Economic Data

Further, the S&P Global Manufacturing and Services PMI data for December will be released next week on January 3 and January 5, which most experts expect slightly below the levels seen in November at 56 and 56.9 levels, respectively. Further, foreign exchange reserves for the week ending December 29 will also be announced on January 5.

FOMC Minutes

Globally, all eyes will be on the FOMC minutes of the Federal Reserve meeting held in December 2023. The market participants will look for cues related to rate cuts expected to take place in 2024.

In the December meeting, the US Federal Reserve kept the fed funds rate unchanged at 5.25-5.50 percent for three meetings in a row, while hinting at three rate cuts (total 75 bps) in 2024, given the falling inflation. Economic growth is estimated to be higher at 2.6 percent in 2023 against an earlier projection of 2.1 percent, but lower at 1.4 percent for 2024 against earlier estimates of 1.5 percent.

Technical Analysis

The Nifty 50 turned healthy after a week of correction and registered a strong bullish candlestick pattern on the weekly scale. Further, the index hit a new milestone of 21,800 during the week, though saw some profit-taking on Friday.

Higher highs and higher lows formation continued for five weeks in a row, and higher lows continued for the ninth consecutive week, while momentum indicators RSI (relative strength index) and MACD (moving average convergence divergence) maintained positive bias.

Technically, given the smart rally in the past week, the market may prefer to consolidate for some more days, but after the said consolidation, the index is expected to leap the 21,800-22,000 zone in the coming weeks, with crucial 21,600-21,300 area as a support

Immediate support is observed around 21,600, followed by 21,500, while strong support lies around the week's low around the 21,300 mark

Although prices are in uncharted territory with no prominent resistance visible, 21,850 followed by 22,000 presents an immediate hurdle, considering the overbought conditions. Traders should monitor these levels and adjust their strategies accordingly

Reading Current Option Data

Given the strong optimism in the market, options data indicated that the Nifty 50 Index is expected to face resistance at 21,800-22,000 levels in the near term and further may also aim for the 22,500-23,000 zone in the short-to-medium term, with a support zone of 21,700-21,500 in the near term and then 21,000 as crucial support.

As per the first weekly options data of the January series, 22,000 strikes enjoyed the maximum Call open interest, followed by 22,500, 21,800, and 23,000 strikes, with meaningful Call writing at 23,000 strikes, then 22,000, 22,500 & 21,800 strikes.

On the Put side, the maximum open interest was owned by the 21,500 strikes, followed by the 21,000 strikes and 21,700 strikes. The writing was observed at the 21,500 strike, then the 21,700 strike, and the 21,200 strike.

Since the market started moving upwards in November, the volatility has been gradually increasing week after week, except for one week. This suggests that market participants are overly bullish on the Nifty 50. Therefore, some caution is warranted at these levels and some profit booking can't be ruled out in the near to short term.

Participant Wise Final F&O Weekly Summary

FII's, PRO, and Clients F&O Summary by Segment




Summary - Overall

Overall, unless the previous high point of 21801 is convincingly taken out, the markets may have put a temporary top in place for themselves. Even if the markets attempt to post incremental highs, it has created a stiff resistance zone in the 21800-22000 zone. It would be greatly difficult for the markets to move past 22000 levels soon and sustain above that.

The most prudent method to navigate such overheated markets would be to keep leveraged exposures at modest levels and stock to only those stocks that show strong or at least improving relative strength. It is strongly recommended that one must now turn to traditionally defensive pockets like Pharma, FMCG, etc while making fresh purchases.

A highly selective and stock-specific approach 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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