Nifty Outlook - 22 Dec-2022

Nifty started Wednesday’s session on a positive note, but it witnessed selling pressure at higher levels and as the day progressed, the selling intensified which resulted in a cut of over a percent in the index to end around 18200.

Nifty Today:

The market had a sharp cut today post the news of rising Covid cases in China; but irrespective of the news flows the data had already pointed towards probability of a short term corrective phase. The FII’s had about 76 percent of positions on the long side on 1st of December which had gradually reduced to below 60 percent and in this week they formed fresh short positions as well which trimmed their long positions to below 50 percent. This means that they have more short positions now in the index futures and such scenarios historically have led to market corrections. Further, the Nifty index had recently given a breakdown from a Head and Shoulders pattern on the daily chart, and the pullback move in last couple of sessions have seen the index resisting around the neckline of the pattern which also coincides with the ’20 DEMA’. The Bank Nifty index which was holding above its 20-day EMA breached that crucial support today which resulted in a sell-off in that index too. So the data such as FII positions, depreciating INR and weakening technical structure already hinted at a corrective phase in the index and until the data changes, the weakness is likely to continue and any pullback moves are likely to get sold into. The index has completed an equal move of previous corrective leg on the intraday charts around 18160, so the follow up move on the expiry day will be important to see. Pullback move, if any, from this support is likely to see resistance around 18370 followed by 18500, while if the Nifty continues this correction then 18070 would be the initial support to watch (which is the 38.2 percent retracement level of the recent uptrend) followed by swing low support around 17970.

Short formation by FII’s led to market correction; Pharma stocks outperformed

The Pharma stocks witnessed buying interest after a long time and in such times of uncertainty; stock from this sector could act as good defensive bets for the short term. Hence, traders can look for contra bets from this space while it is advisable to stay cautious on the broader markets till the data changes.

Nifty & Bank Nifty Levels: