Market indecision likely to continue as participants grappled with uncertainty

Nifty index slipped 0.97 percent last week ending January 17, leaving market participants grappling with uncertainty and reinforcing a directionless sentiment. The formation of a Doji candlestick pattern on the weekly chart highlights this indecision. Trading below the 10-day EMA (Exponential Moving Average), the index faces stiff resistance at 23,500, a former support level now acting as a key hurdle, reflecting bulls’ retreat to the sidelines. This technical setup points to a grim short-term outlook, with dwindling buyer interest and persistent bearish pressure rewriting the market narrative. The index has established a broad trading range between 23,400 and 23,000, as Call and Put writers aggressively position themselves, signaling a stalemate between bulls and bears.

Meanwhile, the RSI (Relative Strength Index) on the daily chart displays bullish divergence, with the index forming a solid base near 23,100–23,000, albeit without clear direction. With the index trading below key moving averages and broader economic uncertainties looming, market sentiment remains fragile amid the Q3 earnings season and FIIs’ persistent selling.

Open Interest (OI) Trends

The Nifty futures OI jumped from 15.76 million shares to 17.99 million shares, a sharp rise of 2.23 million shares. Coupled with the index’s 0.97 percent drop, this surge suggests bearish traders are pyramiding short positions. The escalating OI reflects the continuation of the bearish trend and underscores the lacklustre sentiment gripping the market.

FPI Activity

Foreign portfolio investors (FPIs) exhibited a lack of enthusiasm, adding no meaningful long positions. The FPI long-short ratio edged up marginally from 15.45 percent at the start of the week to 15.86 percent, reflecting cautious institutional behaviour. As long as FPIs refrain from returning to buying mode, significant recoveries are unlikely, and bullish attempts are repeatedly thwarted.

Options Data Insights

Options data reveals substantial Call open interest at the 24,000 strike, while the 22,700 strike holds the highest Put open interest. Heavy activity in the 23,500–24,000 Call range and 23,300–22,700 Put range indicates immediate resistance at 24,000 and strong support at 23,000. Intense Call writing and Put unwinding between 23,500 and 24,000 solidify bearish dominance. The Put-Call Ratio (PCR), unchanged at 0.73, underscores the tightening grip of bears. A breach below 23,000 could intensify selling momentum, dragging the index to 22,700.

Outlook for the Week Ahead

The weekly Doji candlestick pattern underscores the market’s indecision, as the index trades below its immediate resistance and moving averages. Subdued Q3 results from heavyweight stocks add to bearish sentiment. Immediate support lies at 23,100–23,000, bolstered by strong put writing and base formation. Holding these levels is critical for any minor pullback. However, the 23,700–23,900 zone poses a formidable challenge, reinforced by major averages and massive Call-writing positions. A sustained move above 24,000 could ignite a relief rally toward 24,500, but until the index decisively breaks out of the 23,800–24,000 resistance zone, market participants are advised to adopt “range trading” strategies.

On the downside, a breach below 23,000 could amplify selling pressure, potentially pulling the index down to the critical 22,700 level. With foreign institutional investors’ (FIIs) lack of enthusiasm and a continued rise in open interest (OI) market’s bearish momentum appears far from over. Without a clear directional breakout, the market sentiment is expected to remain subdued, favouring cautious and defensive trading strategies.

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