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The Indian stock market experienced significant volatility on Friday, the 13th, showcasing a dramatic turnaround. The Nifty index, a key indicator of the National Stock Exchange of India's performance, initially plummeted by 368 points during the late morning trading session. This steep decline sparked concerns among investors, reflecting anxieties about global economic conditions and potential interest rate hikes by the US Federal Reserve. However, a remarkable recovery ensued, propelling the Nifty to close with a substantial gain of 220 points, representing a 0.89% increase. This dramatic swing resulted in a wide intraday range of 611 points, underscoring the market's heightened sensitivity to both positive and negative cues. Despite the week closing with a more modest 0.37% gain, the magnitude of Friday's price movement is particularly significant. The large price candle created on Friday completely encompassed the entire week's trading range, and even a large portion of the preceding fortnight's movements. This pattern, often observed in technical analysis, suggests a powerful shift in market sentiment, supporting the bullish interpretation of Friday's gains.
A key technical indicator that provided further validation for the upward trend was the successful retest of the neckline of an Inverse Head & Shoulders pattern. This chart pattern, recognized by technical analysts, indicates a potential bullish reversal after a period of decline. The Nifty had previously touched this neckline twice; once on December 5th, a day when trading volatility was exceptionally high (563-point range), and again last Friday. The fact that the index found support at the neckline on both occasions significantly strengthens its role as a key support level. This suggests a strong underlying buying pressure that prevents the index from falling below this critical point. The closing price of 24768 on Friday marked the highest closing level since October 16th, solidifying the positive momentum. This robust recovery and strong support levels have encouraged market analysts to project a potential rise towards the 25,400 mark in the coming weeks.
A crucial level to watch for confirmation of this upward trajectory is the 25,125 mark. This specific price point represents a significant milestone as it corresponds to a 61.8% retracement of the substantial 3014-point fall from the Nifty's all-time high reached on September 26th. The 61.8% Fibonacci retracement level holds considerable significance in technical analysis because it often acts as a strong resistance level during a price recovery. If the Nifty successfully surpasses this level, it would negate the prior bearish trend and strongly suggest that the current upward trend is gaining considerable traction. This achievement would signal a significant shift in market sentiment, paving the way for a potential new all-time high in subsequent months. The achievement of 25,125 would not only confirm the technical pattern's validity but also bolster investor confidence, fueling further upward momentum. This positive outlook is further reinforced by the robust performance of the Bank Nifty index, which experienced a similar surge on Friday.
The Bank Nifty, an index tracking the performance of banking stocks, also exhibited remarkable strength, closing with a significant 1390-point candle on Friday. This surge represents a 0.69% daily gain and a 0.14% weekly gain. The Bank Nifty is now only 1.62% away from its all-time high of 54,467, hinting at the possibility of reaching new record levels. While the Nifty SmallCap and MicroCap indices (often referred to as the ‘tail’), which had shown a remarkably synchronized upward trend over 14 consecutive sessions, experienced a correction on December 12th. They also recouped a significant portion of their intraday losses on Friday, though they ultimately failed to close in the positive territory. Interestingly, the outperformance of the 'tail' (SmallCap and MicroCap indices) before the correction, and its partial recovery on Friday, further illustrates the overall market strength. The strong performance of these smaller-cap indices indicates a broader market upswing, where investors are increasingly willing to take on more risk.
In contrast to the positive performance of the Indian market, the Dow Jones Industrial Average experienced a more bearish trend. It closed down 0.2% on Friday, marking its seventh consecutive session of losses. This is the longest such losing streak since February 2020, signifying a potential shift in global market sentiment. This prolonged decline in the US market raises some concerns, primarily related to the ongoing uncertainty surrounding interest rate decisions by the US Federal Reserve. The upcoming two-day meeting of the Federal Open Market Committee (FOMC), the policy-making body of the US Fed, is crucial. Markets anticipate a 97% chance that the Fed will cut interest rates by 0.25% at this meeting. This anticipated rate cut could significantly impact global markets, including the Indian markets. The FOMC's decision, expected to be announced on Wednesday, will have a notable effect on the markets, with reactions anticipated on Thursday morning in India. This underscores the interconnectedness of global financial markets and the significant influence of US monetary policy on emerging markets like India.
The subsequent FOMC meeting, scheduled for January 28-29, will coincide with Donald Trump's assumption of office. This juncture presents a compelling scenario to observe the interplay between the newly elected officials and the Fed's actions. The market's reaction to these events will likely be significant, offering crucial insights into the future trajectory of both US and global markets. Overall, while global uncertainties remain, the Nifty's impressive rebound and positive technical indicators suggest a potential continuation of the upward trend in the Indian stock market. However, investors should remain vigilant and closely monitor both domestic and international economic developments for a holistic view of market sentiment and potential risks.