Analysis of 'Nifty 50' for the week starting from 09 January 2023

We predicted, in our last week’s study, that the ‘Nifty 50’ has a bearish sentiment and will fall below 17800 this week. That was a partially correct prediction because the index has been bearish this week but did not go well below the 17800 level. It just declined till 17796 as shown in the chart below.

Picture 5.1

Let’s now check what the charts are suggesting for next week.

NIFTY 50 Technical Analysis

Looking at the weekly chart, we can see that the bullish cross (09EMA above 21EMA) is intact and the price is right above the 21EMA. It means the market might consider it as a support zone and the index might go up from here.

Picture 5.2

While checking the daily charts, we can see that the constituents of the bearish cross (09EMA below 21EMA) are quite far from the current market price of 17859.45 as 09DEMA is at 18070.55 and 21DEMA is at 18179.82. Therefore, I presume that the Nifty may go up to retest either of these or both levels next week, before falling further. There is a possibility of further decline from current levels also because the fall, incurred in the last three sessions, carried an increasing volume. And we know that increasing volumes, in a falling market, fuel the decline to dive deeper.

Picture 5.3

The hourly charts are showing that the bearish cross (09EMA below 21EMA) is intact, and the price is 39.77, 112.32, and 192.66 points away from the 09EMA, 21EMA, and 50EMA respectively. It means, hourly charts are also showing some room for a retest on the upside.

Picture 5.4

Let’s check what kind of pattern Nifty chart is forming. The daily chart shows (see picture 5.3) that index has made three lower highs since 1^st December 2022 which means downtrend is on. Along with this, if we try to draw (see picture 5.3) a line connecting latest lows, we find a falling wedge formation on daily chart that gives a support at 17650-17670 levels. If Nifty respects this level, there’ll still remain a room for a down-move till 17650. Therefore, we shall take a bearish trade for next week. In case, price breaks above this rising wedge pattern, we shall think of taking bullish trade.

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Based on our above mentioned Nifty Technical Analysis, we expect Nifty to retest the 17950-18050 zone, and fall again to make a low of 17508 where 200DEMA is lying. In case, Index does not fall from the retest zones and goes up with adequate volumes, considering weekly 21EMA a rebound zone, we shall observe a resistance at the 18250-18280 zone which is the high of the last two weeks.

NIFTY 50 Open Interest and FII, DII Data

If we see the OI change data, we can see that huge call writing has happened at 18000 and 17900 levels today, 06 January 2023, against relatively much lower put writing at 17800 and lower strikes. The outstanding open interest data chart (Picture 5.5) shows that there is huge call writing at the 18000 level, making it a strong resistance. The Put writer’s zone is below 17800 levels, which is carrying relatively lower Open Interest. Therefore, bearishness is more likely to continue. 

Picture 5.5

The FII, DII data shows that foreign institutional investors sold worth 7813.44 crores this week while domestic institutions bought worth 2756.58 crores. The final outcome of these figures shows that there has been net institutional selling of 5056.86 crores this week which is also a bearish sign.

Conclusion

We have seen in aforementioned analysis that most of the indications are towards bearish side. If you see,

• 09 EMA and 21 EMA on daily and hourly chart have given bearish signal,
• Three lower highs have been formed on daily chart,
• Falling wedge chart pattern on daily chart shows that there is a scope for a down move,
• Options’ open interest figures are giving bearish indication,
• Institutional figures are also giving bearish sign.

There is only one bullish signal, which is the support of 21 week’s exponential moving average. Therefore, I am bearish for next week and holding a tiny Nifty-bearish-spread with maximum risk on 46.25 point and maximum possible profit of 53.75 points with a stop loss at 18243.

Note: I have just shared what I studied. I am not sure if I’ll trade next week or not. Also, the Data, used for analysis, has been taken from different sources on internet and I am not a SEBI authorized analyst, therefore verify the data and seek experts’ opinion before taking any trade.