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The Indian stock market experienced a significant downturn on January 6th, 2024, with the Nifty 50 index plunging 1.6% due to widespread selling across various sectors. This decline breached the crucial support level of the 200-day Exponential Moving Average (EMA) at 23,700, signaling a potential shift in market sentiment. The bearish momentum continued into the second consecutive session, indicating a sustained downward trend. Momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) showed a negative bias, further reinforcing the bearish outlook. If the index fails to regain the 200-day EMA, the immediate downside target is projected to be in the range of 23,450-23,500, aligning with the December lows. A further decline could bring the index to the crucial support level of 23,263. On the upside, immediate resistance is situated at 23,700, with further resistance levels at 23,900 and 24,000. The daily chart reveals a long bearish candlestick pattern, characterized by a lower top-lower bottom formation, which is a classic bearish signal. This pattern, coupled with the index's position in the lower band of the Bollinger Bands and below all major moving averages, strengthens the bearish indication. The negative crossover of RSI and MACD adds more weight to the bearish prediction.
The Bank Nifty, mirroring the broader market trend, also exhibited bearish characteristics. A long red candle formed on the daily charts, pushing the index closer to the lower end of the Bollinger Bands. A lower high-lower low formation was evident, confirming the downtrend. The decisive breach of the 200-day EMA further underscores the bearish sentiment. The Bank Nifty also trades below all key moving averages and is situated within the lower band of its Bollinger Bands. Similarly, the RSI and MACD indicators for the Bank Nifty are in negative territory, pointing towards continued bearish pressure. Pivot points and Fibonacci retracement levels offer additional insights into potential support and resistance areas for both indices. For the Nifty 50, pivot point support is seen at 23,547, 23,420, and 23,215, while resistance is projected at 23,958, 24,085, and 24,291. For the Bank Nifty, pivot point support is at 49,746, 49,445, and 48,958, while resistance lies at 50,720, 51,021, and 51,508. Fibonacci retracement levels add another layer of analysis, with further support and resistance levels identified for the Bank Nifty.
Options data provides further clues into market sentiment and potential price movements. For Nifty 50, the maximum Call open interest is observed at the 24,500 strike price, suggesting this level might act as a significant resistance. This is followed by the 24,200 and 24,000 strikes. Maximum Call writing, which indicates potential resistance, is seen at the 24,000 strike. On the Put side, the maximum Put open interest is located at the 23,000 strike, suggesting this level could act as a crucial support level. This is followed by the 23,300 and 23,500 strikes. Maximum Put writing is concentrated at the 23,300 strike price. For the Bank Nifty, the monthly options data reveals that the maximum Call open interest is at the 52,000 strike, indicating potential resistance. Significant Call writing is observed at the 51,000 strike. On the Put side, the maximum Put open interest is located at the 49,000 strike, which might function as a support level, followed by the 50,000 and 48,000 strikes. Maximum Put writing is observed at the 48,000 strike. Analyzing the open interest and writing activity in both Call and Put options provides a better understanding of the market’s expectation of price movements in the near future. Furthermore, the Nifty Put-Call Ratio (PCR) fell to 0.72, suggesting a bearish market sentiment. The India VIX, a volatility index, surged 15.58%, indicating increased market uncertainty and caution among investors. Data on long and short build-ups and unwinding, along with high delivery trades, offer insights into investor behavior at the stock level. The inclusion of Hindustan Copper in the F&O ban list, alongside the retention of Manappuram Finance and RBL Bank, and the absence of any stocks removed from the ban list, completes the comprehensive market overview.
Source: Trade setup for January 7: Top 15 things to know before the opening bell