What’s on the cards as Nifty inches towards all-time high!
Can someone predict or time the market?
Most people will say “No” and boldly claim that none can do it. Why not give it a try and post what you see from the charts?
So, here is my inference on NIFTY 50.
We are about 2% below the NIFTY all-time high price at writing. Most options traders will close their call positions as we move closer to the all-time high price, acting as a resistance. Some aggressive traders may open a put or short the index, hoping the resistance stays valid. While investors do not care about all-time highs, closing or covering their positions for traders is highly time-sensitive. Note that traders generally close positions as we move towards Thursdays and Fridays. This could also add to the market volatility.
Will the index come down or keep going high?
Let’s look at the CBOE Volatility Index or VIX for NIFTY:
At the time of writing, the NIFTY VIX has been relatively constant over the last one month and, in fact, had dropped by 2% on 13-Jan-2022. In general, when the broader market’s volatility decreases, the markets shall ascend. One has to note that VIX shall shoot drastically within a few seconds to minutes when the market crashes! To give an example — the NIFTY VIX shot up by over 500% in a matter of days during the COVID-19 crash.
Today, we do not see any such signs, though anything is possible.
Apart from the news from the US that inflation is peaking to the highest ever in the last few decades, there is no significant threat to the economies, owing to Omicron. State Governments have imposed a curfew and may enter a potential total lockdown; however, the economy remains bright, at least to my superficial knowledge.
This time IT IS DIFFERENT!
Usually, the markets fall when FPIs pull out their capital from the markets. However, this time, the retail investors pour their monies into the markets like never before. Probably FPIs and DIIs have learned a lesson — THEY MISSED THE BUS!
If the retailers don’t pull out their monies, and with enough liquidity in the market, which is yet to be fully absorbed (FED tightening as well as the interest rate hike will lure more investors towards the bond market), I think there is enough fuel to propel the index even higher.
In such case, in the short-term, there may be resistance at 18500s to 18600s — followed by probably a short pullback, only to break the all-time highs. After that, the 18500s will become the new support to propel NIFTY’s further upward journey!
Stay Safe & Trade Safe!