Consolidation in 20,222-20,319 zone likely

At a Glance

• India VIX at 14 level
• Volatility index was subdued in 2023
• Historically, Jan-Mar qtr is bearish
• Most of the market tops happened in Mar qtr
• In last 23 yrs, at least 16 tops were made in this qtr
• 9 tops were in Jan, 4 tops in Feb, and 3 tops in March
• Nifty closed above open only 7 times in Jan

The equities registered one of the best calendar years in 2023 as the benchmark index gained by 20 per cent. It gained 7.94 per cent in the December. The broader market indices outperformed the benchmark index. The Midcap-100 index is up by 46.78 per cent, and the Smallcap-100 index is up by 55.62 per cent. The PSE and the CPSE indices were the top gainers, with 79.87 per cent and 74.63 per cent, respectively. The realty index is up by 61.39 per cent. The Auto was up by 47.63 per cent, and The Infra advanced by 39.06 per cent. The PSU Bank index has gained by 32. 11 per cent. All other sector indices gained by less than 30 per cent. During the last year, the volatility index was subdued and remained in the historically lower range of around 14. The FIIs bought Rs31,959.78 crore in the December. The DIIs also bought Rs12,92.25 crore worth of equities.

The Nifty registered one of the best years in the last decade. For the last 10 years (Since January 1, 2014), the Nifty gained by 244.72 percent. It gave an extraordinary gain except for 2015 (the decline of just 4.06%).

Historically, the January-March quarter is bearish. Most of the market tops happened in the January-March quarter. In the last 23 years, At least 16 tops were made in this quarter. Nine tops were in January, four tops were in February, and three tops were in March. Importantly, the Nifty closed above the open only seven times in January. And only nine times in February, it was closed above the open. This means that the first quarter of the calendar year is not a good time for fresh investment. At the same time, in an election year, we have seen the breakout of consolidation in April-May.

In the last 20 years, since 2004, Nifty closed below the open for 13 years. And in February, it closed above the open only nine times. Historically, the Jan-Mar quarter is bearish. Most of the tops formed this quarter, including January 2000, 2004, March 2015, and January 2020, which led to major bear markets. Even in 1992, the top was in March. January is the most bearish in a calendar year, historically.

With the above historical facts, expect the Nifty to consolidate for the next three months. During this consolidation, the index may test the recent breakout level of 20,222 points. The 50 per cent retracement level of the last nine-week upside move is at 20,319 points. Even the 10-week average is also at 20,310 points. Any counter-trend consolidation normally stops at a 50 per cent retracement level. So expect the consolidation in 20,222-20,319 points zone. In any case, if it declines below this, the next level of support is at 19,969 points. Beyond this level, we can’t project on the downside. On the upside, if the rally extends, the immediate target is at 22,000 points, which we projected earlier. Above this, the medium-term target is at 22,861 points, on a most bullish scenario for the next three months.

For next week, the index may open subdued and trade in a tight zone. Last week’s high and low of 21,801-731. The RSI is developing negative divergence. The divergence will be a reality if the Nifty fails to move above 21,801 points. If the daily RSI closes below 68, it will confirm the negative divergence implications. The momentum has clearly been waning for the last week. The Commodity Channel Index (CCI) shows the toping signs. Only a decisive close above 21,801 points will be positive. Otherwise, the market will correct. The 21,800-22,000 is stiff resistance to cross. As the historical evidence is in favour of bears, it is better to avoid building aggressive positions. The pharma, FMCG, and IT sectors will outperform the benchmark for the next 2-3 weeks. Be highly selective on stocks, and stay away from the long positions in the index.

(The author is Chief Mentor, Indus School of Technical Analysis Financial Journalist, Technical Analyst, Trainer, Family Fund Manager)