Technical outlook for the fortnight: Nirmal Bang

The Nifty bounced back in the January expiry, led by banking, metals and auto sectors. It gained over 5% (CMP: 4866) in the first half of the January expiry.

Improvement in IIP numbers for the month of November, technical bounce back and expectations of a positive outcome from the RBI monetary policy due on 24th January have caused positive movements in the markets. The Bank Nifty gained nearly 12% in the January series, led by ICICI Bank (15%), Axis Bank (12%) and SBI (9.8%).
For the month of November, IIP improved to 5.9% as compared to the street expectation of 2.1%. But the growth in major sectors like capital goods and chemicals continues to be in the negative territory. The improvement in the November IIP was mainly due to the manufacturing sector and the positive base effect.
Though it is certain that the RBI is not going to tighten the monetary policy - as suggested by the RBI Governor in a statement - whether it will reverse the trend and up to what extent will be the single most important cue for the movement of the markets, is what needs to be seen.
On the Put Call Ratio open interest (PCR OI) front for the Nifty, the continuous increase in its value from 1 to the current level of 1.26, as on 13th January, suggests an increase in Put activity, which is expected to be dominated by sellers, hinting at a bullish stance in the market.
The increase in OI by around 20% and more than a 5% rise in the Nifty Futures in the January series suggest a positive outlook for the Nifty. Hence, market participants can consider buying on dips around the 4,720-4,750 levels.
On the Nifty Options front, the short-term downside seems to be limited as 4,800 and 4,700 Put has significant amounts of OI build-up of over 5.8 million and 7.7 million, respectively. On the Call side, 5,000 has the maximum OI build-up of over 6.8 million, followed by 4,900, which will act as an expiry base and immediate resistance for the market.
Technically, the short-term trend has turned slightly positive, but the overall medium trend remains cautious and weak. The Index has observed volatile trading sessions since the past few days. The pattern suggests an immediate resistance at the 4,880 level and has support at the 4,800 level. The Nifty is also trading below its long-term 100-200 day moving averages, which is also not a healthy sign.
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