December could be Nifty’s turning point as downtrend may be running out of steam

Market Trend

By Dhupesh Dhameja, Derivatives Analyst, Samco Securities

The Nifty index closed the November series with a subdued 1% decline, reflecting a quieter market mood. However, the action in Nifty futures rollovers tells a different story—rising sharply to 79.34%, significantly higher than last month’s 72.87% and comfortably beating the three- and six-month averages of 77.20% and 75.75%, respectively. This uptick in rollovers indicates traders are hedging their bets, with many expecting the ongoing downtrend to persist but eyeing a potential turning point ahead.

December Series: A Promising Start

As the December series begins, the Nifty carries forward 1.29 crore shares of open interest (OI), a notable increase from 1.16 crore shares in the previous series. This surge in OI, paired with a higher cost of carry at +0.97%, suggests aggressive short positioning by traders. The bears, it seems, are doubling down, betting on a continuation of the negative sentiment.

Volatility Lurks in the Shadows

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Dhupesh Dhameja

Derivatives Analyst|Samco Securities

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The India VIX, often dubbed the market's "fear gauge" provided a roller-coaster of emotions in November. Starting the series at 20.00, it cooled to 14.42 by the end, signaling reduced panic. Yet, with VIX hovering above the critical 15-mark, uncertainty remains the market's constant companion, especially as global cues like the Russia-Ukraine War keep investors on edge.

FPIs Flip the Script

Foreign portfolio investors (FPIs) have delivered an interesting twist to the narrative. Starting November with a bearish Long-Short ratio of 22.55%, they ramped it up to 33.07% by month-end. This surge highlights a shift in sentiment, as FPIs squared off their shorts and bolstered their bullish bets, signaling a potential turnaround in market dynamics.

Options Market Insights: Clarity Amid Uncertainty

The options market paints a clear picture of key levels to watch. On the downside, the 24,000-strike Put option holds the highest open interest, followed by 23,500, reinforcing these as crucial support zones. Meanwhile, on the upside, the 24,500 Call option leads in open interest, with 25,000 closes behind, marking these as formidable resistance levels.

What Lies Ahead: Sideways or Breakout?

The Nifty appears to be stuck in a tug-of-war between buyers and sellers. While the price action remains subdued, rising open interest, higher rollovers, and FPIs' newfound bullish bets hint that the downtrend may be running out of steam. Technically, the index has carved out a solid floor near 23,200, where the 50-week EMA (Exponential Moving Average) has historically acted as a springboard for rebounds. The 24,500 level, however, continues to be a tough ceiling to crack. Adding to the intrigue, the Nifty is trading close to its 200-day EMA (23,570), a key psychological threshold that has proven to be a reliable support level in the past.

Strategy for Traders

For now, the index remains rangebound between 23,500–24,000 on the downside and 24,500–25,000 on the upside. Traders should adopt a "buy near support, sell near resistance" approach until a decisive breakout occurs. A move beyond 24,500 could spark a fresh rally, while a breakdown below 23,500 may invite further selling pressure.

As the December series unfolds, the market stands at a pivotal juncture, with traders urged to keenly observe these levels for clarity on the next directional move.

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