Historical data indicated markets might end January in red; Nifty range seen between 22240-22400

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History suggests that an entry into the earning season with indices at new record peaks, or at month highs, presents a high chance of a monthly close in the red. That said, we may be riding on exceptions this month, as the Santa rally looks to have passed on the baton to the election wave. However, while these two aspects have been propping up sentiments in the last fortnight or so, one of the critical underpinnings of the rally may have lost a step or two, with recent CPI readings from the US, prompting traders to reduce their bets on Fed’s rate cuts. 

With these in the background, we would like to set 22240 and 22400 as likely objectives for the next fortnight, with 21790 as the downside marker. Last year, three months of pain at the start of the year was followed by nine months of joy that has now spilled over into the new year. Hopefully, the new year’s up moves are all not done within this month or the next few.

On the other hand, Nifty Bank looks less certain with its upside intentions. Banking stocks have remained weak on most of the days this week except Friday. HDFC Bank, ICICI Bank, Kotak Bank, and SBI which form 78% of Bank Nifty contributed the most to the fall in banking stocks this week. In the F&O space, 58% of the BankNifty stocks have seen a Short buildup this week. ICICI Bank looks to be the dark horse that could lead the index if there happens to be a pullback. 

The Nifty Bank Index looks less poised than Nifty to charge. Despite rising in the last three days, the index failed to close above its 10 day SMA, potentially an early sign of rejection trades, and there is not enough momentum to push beyond the 1500 point range that it appears to have settled in for now. In other words, we are going into this week, with less clarity on Nifty Bank’s upside trajectory.

With USD INR, we are probably entering an interesting phase. True, the multi-month range has largely held, but in contrast to previous months, it is the lower band of 82.9 that has been under repeated attacks, unlike earlier months which have seen 83.4 being repeatedly under siege. We are not yet clear on a directional breakout yet, but there are indeed initial signs of higher volatility this month.

First published in Financial Express

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