Nifty Breakout? Charts Predict Potential Record Highs This Week
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Nifty 50: Navigating the Post-Diwali Rally – A Technical analysis & Outlook
Published: November 10, 2023
Last Updated: November 10, 2023
The Nifty 50 index experienced a pause in its six-day winning streak on Friday, November 3rd, 2023, sparking debate about the sustainability of the recent Diwali rally. While the index has shown strong performance, signs of weakness emerged mid-week, raising questions about a potential pullback before a further push towards record highs. This article delves into a detailed technical analysis of the Nifty 50, incorporating insights from Anand James, Chief Market Strategist at Geojit Investments, alongside broader market trends, historical data, and a forward-looking viewpoint.
I. Recent Performance & The Diwali Rally
The Nifty 50’s recent rally, culminating in a six-day winning streak, was largely attributed to short covering. However, as noted by Anand James, the decline in Open Interest (OI) during the last week of expiry was only 9%, substantially lower than the six-month average of 20%. This suggests that further unwinding of short positions is possible, potentially fueling continued upward momentum – at least in the short term.
The historical context of the Diwali week is also noteworthy. Over the past decade,the Nifty 50 has delivered negative returns during this period in 5 out of 10 instances. Interestingly, in 80% of those negative return years, the index experienced an average decline of 2% in the subsequent month. This historical pattern suggests a cautious approach, with a potential for a near-term drift towards the 25,400 mark.
Table 1: Nifty 50 performance During Diwali Week (Last 10 Years)
| Year | Diwali Week Return (%) | Following Month Return (%) |
|---|---|---|
| 2013 | -0.8% | -1.5% |
| 2014 | 1.2% | 2.3% |
| 2015 | -0.5% | -3.1% |
| 2016 | 0.7% | 0.9% |
| 2017 | -1.1% | -2.8% |
| 2018 | -0.3% | -1.7% |
| 2019 | 2.5% | 1.8% |
| 2020 | 1.9% | 0.5% |
| 2021 | -0.6% | -4.2% |
| 2022 | 0.4% | -1.1% |
| Average | 0.3% | -1.6% |
Source: NSE India historical data, compiled November 10, 2023.
II.Derivatives Setup & FII Activity
The derivatives market provides crucial insights into potential market movements. the increasing pace of Foreign Institutional Investors (FIIs) covering their short positions in index futures is a bullish