The last two days of the 2022 F&O series have become crucial for the Nifty 50 index in order to determine the market direction. Whether last week's sell-off was just a one-off or is the downtrend here to stay for the medium-term is a question that is getting asked on the street.

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In fact, the Nifty 50 closed above the 18,100 mark on Tuesday, extending its gains for the second day. What is more important is the fact that it ended near the highest point of the day, led by a recovery in the second half of the session. Metal stocks were the outperformers on Tuesday on hopes of China's economy reopening, which triggered a short covering rally.

Gautam Shah of Goldilocks Premium Research sees an upside cap at 18,250 levels for the Nifty 50. In an interaction with CNBC-TV18 on Tuesday, Shah said that a close below 17,800 on the index would mean game, set and match for the bears and confirm a medium-term downtrend. However, he also mentioned that a sustained close above 18,100 may give evidence that last week's sell-off was just an isolated incident.

CNBC-TV18's dealing room chatter on Wednesday also highlighted the fact that 18,200 is seen as a short-term resistance for the Nifty 50.

What do the charts suggest for Dalal Street?

Jai Bala of cashthechaos.com suggests that any rally below levels of 18,345, which is a level of resistance for the Nifty 50 would be very bearish. He cited the monthly charts rejection from record high levels as a sign of weakness. Near term support for the index, according to Bala, stands at 17,500.

The Nifty Bank index managed to hold the immediate support zone of 42,400 but faces an upside hurdle at 43,000, according to Kunal Shah of LKP Securities. 43,000 is where there is highest Open Interest addition seen on the call side. He expects the index to continue trading in a broad range of 42,000 - 43,000.

Here are key things to know about the market ahead of the December 28 session:

SGX Nifty

On Wednesday, Singapore Exchange (SGX) Nifty futures — an early indicator of the Nifty index — declined 68 points or 0.37 percent to 18,080, thereby pointing to a negative opening for the market. As the year draws to a close, volumes are likely to remain on the lower side.

Global Markets

Asian markets have opened lower as investors weigh potential headwinds going into the new year. The Nikkei 225 index is down 0.6 percent while the Topix shed 0.3 percent in early trading. The Kospi in South Korea is down nearly 2 percent.

The holiday shortened week on Wall Street began on a mixed note on Tuesday. The Dow Jones managed to eke out a 40-point gain while the Nasdaq shed 1.4 percent, courtesy a double-digit drop in Tesla. The electric vehicle-maker ended 11 percent lower, declined for the seventh straight day, and is headed for its worst month, quarter, and year on record. Futures are currently flat.

What to expect on Dalal Street

In a market like this, Gautam Shah intends to be sector and stock specific. He is focusing on the top 100 companies currently and not on the broader markets, where midcaps and smallcap stocks have declined anywhere between 20-40 percent.

"Largecaps is where the liquidity is, where you can get in an get out really fast. If you are playing with a 1-3 month horizon, I would still go with the largecaps," he said.

On the Nifty Bank front, LKP's Kunal Shah said that in case the index manages to break above the mark of 43,000, it may lead to a sharp short covering move towards levels of 44,000.

Siddhartha Khemka of Motilal Oswal Financial Services expects the market momentum to remain positive in the near-term given the lack of any major global cues due to the year-end holidays and a stable economic outlook for India.

Key levels to watch out for

For tomorrow's weekly and monthly options expiry, the 18,000 strike call of the Nifty 50 index added another 30.5 lakh shares in Open Interest. The only other significant addition was seen in the 18,100 call, which added just over 3 lakh shares.

On the downside, the 18,000 put added over 34 lakh shares in Open Interest, followed by the 18,100 put (22.49 lakh shares) and 17,900 put (12.9 lakh shares).

Indiabulls Housing Finance is back in the F&O Ban along with Balrampur Chini. Punjab National Bank remains in the ban period.

FII/DII activity

Short Covering (Increase in price and Decrease in open interest)

Long Unwinding (Decrease in price and in open interest)

First Published:Dec 28, 2022 5:06 AM IST