The Indian benchmark Nifty 50 is poised for a potential extension of its remarkable rally on December 18th, after registering its best weekly performance in six years last week. However, cautious optimism prevails amidst technical indicators suggesting overbought conditions and the looming impact of global events. This report will delve into the key factors shaping the market sentiment and present potential trade setups for both bulls and bears.
Bullish Buzz:
**Momentum: ** The Nifty soared over 5% last week, marking its strongest weekly gain since December 2017. This momentum, spurred by positive domestic and global cues, could propel the index further.
IT Outperformance: IT stocks emerged as key drivers, surging 7.2% for the week and delivering their best weekly performance in three years. This sector’s strength could spill over to other segments.
F&O Data: Open interest in Nifty futures increased last week, indicating continued bullish bets from market participants.
Reasons for Caution:
Technically Overbought: The Nifty’s 14-day Relative Strength Index (RSI) stands at 85, firmly in overbought territory. This suggests a potential for a pullback before further upward movement.
Global Headwinds: The December 19th meeting of the Bank of Japan and the upcoming US inflation data could trigger volatility in global markets, impacting domestic sentiment.
Profit Booking Risk: With Nifty nearing record highs, profit booking by short-term players cannot be ruled out, leading to corrections.
Trade Setups:
Bulls:
Buy on Dips: Utilize any intraday dips towards 21,300 (Friday’s closing level) as buying opportunities. Aim for targets near 21,550 and 21,700.
Sector Focus: Focus on sectors contributing to the recent rally, such as IT, auto, and pharma. Look for stocks breaking out of bullish consolidation patterns.
Options Strategy: Consider buying Call options with 21,600 or 21,700 strike prices if the immediate support holds.
Bears:
Sell on Rallies: Sell Nifty futures or short stocks if the index climbs above 21,550. Target immediate support at 21,300 and lower levels at 21,150.
Volatility Play: Consider buying Put options with 21,400 or 21,300 strike prices if the RSI remains high and global headwinds intensify.
Overall Strategy:
While the bullish trend appears to have legs, prudence is key. Manage your positions with strict stop-loss orders and avoid overleveraging. Monitor global cues and technical indicators closely for timely entries and exits. Remember, the market is dynamic, and this trade setup is for informational purposes only. Conduct your own thorough research and analysis before making any investment decisions.
Additional factors to consider:
FII and DII activity: Monitor the flow of funds from Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) for further directional bias.
Corporate news and events: Stay updated on key corporate news and events that could impact individual stocks or sectors.
Global market movements: Keep an eye on global market movements, especially in the US and Europe, as they can influence domestic sentiment.
By understanding the underlying dynamics and adopting a cautious approach, you can navigate the market on December 18th and potentially capitalize on the ongoing bull run while mitigating risks.
