Technically Speaking == Dec 2021

The monthly chart for Dec 2021 is ready for review, this instrument eliminates noise and delivers a clear picture of what has happened and presents a fair image of what to expect shortly.

Nifty 50 opened and closed at 17104.4 and 17354.05 respectively making a profit of 1.46%

Let us look at some of the technical indicators and try to unearth the hidden ideas.

We will cover five areas in this mail, and attempt to place them either in a Bull or Bear Territory:

1.             Index movement

2.             Market Breath Report

3.             Volatility Index

4.             Inflation

5.             FII Activity

Let’s Start with a Short Story:

Let’s quickly understand how Effective Machine Learning is compared to Human Mind!

·       Self-Driving car encounters an accident, the data is analysed, and the error is rectified. The probability of an accident for a similar reason is almost negligible.

·      This information is fed into the cloud, all self-driving cars across the Globe on this network now learn and will never commit the same error.

·       A new-born self-driving car on its first day at work is aware of all the lessons and is day one ready to accomplish its task as if it has multiple years of experience.

Now, let’s bring in Humans; A child of the Smartest Man on earth is only a child. In the next 15-20-30 years, their learnings will depend on the mentors, friend circle, and emotions. ‘I rest my case’. 

Index Movement-

Nifty reached a high of 17639; however, the pressure generated by the bears brought it down by 285 points.

If we look at the last candle in the below chart, we will notice two important events.

1.    Since the Covid crash, Nifty slipped below its previous months low for the first time in Heikin Ashi Chart.

2.     16500 level was breached; however, the team of bulls strongly pushed the bears back. They not only defended 16500 but also took back the 17000 level. The action was impressive.

Now, looking at the below image of MACD for Nifty, the blue line is above the red line, this indicates that the Bulls still have strength, and they will make all possible attempts to hold the fort.

The defence around 16500 was quite strong and impressive, MACD continues to favour the bulls. Bears made a great attempt and scared the investors across the globe by the sudden attack. However, Bulls delivered the Knockout punch and that’s what matters

We will give this point to the Bulls.  

Market Breath Report:

A crash or Major correction will be first indicated in the Market Breath.

There can never be a crash until the majority of the shares are moving down, similarly, there will be no Bull run until the majority of the stocks are moving up.

The Advance decline ratio for Dec 2021 is 1.38 (Source: BSE India). A ratio greater than 1 is considered good.

Now, in the above charts, the blue region indicates advance and the orange bars indicates decline. As we can witness strong pressure in the blue region from the 15^th to 21^st December. However, bulls pushed them with great vigour.

This is a good sign, and we will give this point to the Bulls.  

 

Volatility Index (S&P 500 VIX):

The VIX is considered a key indicator in the technical universe, it captures the fear in the world of investment. The VIX has an inverse relation with the market, when VIX moves up, the market moves down and vice versa.

VIX closed at 17.21; this level is below its historic average. During the month VIX climbed as high as 35.32 Bears had the controls, fortunately, VIX settled down and closed below 18 and Bulls took the control back.

In Dec 2021, VIX moved with high velocity. This indicator below 18 is a bullish sign; We must give the points to the Bulls.  

 

US Inflation Data: (Nov 21)

If inflation does not settle down, sooner or later it will unsettle the market. FED will have no choice but to take a stance and reduce the liquidity.

Below, we have shared the chart for the entire available history. The annual inflation rate in the US accelerated to 6.8% in November of 2021, the highest since June of 1982, and in line with forecasts. It marks the 9th consecutive month the inflation stays above the Fed's 2% target.

In the above charts, we have zoomed in providing the date from May 21. The rates soared to 6.8% in Nov, which means inflation is currently at a 39 year high.

The rise is a big reason to worry, we must give this point to the Bears. 

FII Activity:

Since April 2021, FII’s are majorly liquidating their position. Oct, Nov and Dec data is alarming.

This data might be an advance warning if we don’t concentrate; markets, can punch between the eyes and knock the wind out of us. This point is owned by the Bears. 

Important Point to note: The selling has been quite steep, FII’s must park this money eventually. We should watch the future data carefully to build the next strategy.

Summary:

·      The index witnessed one of the most intensely fought battles between the Bulls and Bears in a Long time.

·       Market Breadth is positive with the advance-decline ratio is at 1.38

·       VIX closed below 18, indicating a Bullish sign.

·       If the inflation doesn’t settle, it has the potential to damage the sentiments.

·       FII’s have been consistently liquidating their position since April 21, the quantum of current selling is threatening.

Please Note:

·       We are attempting to write this report in a simple language. The idea is to highlight the important data points in understandable language.

·       If you find it valuable or think some changes can make this report better, feel free to share your thoughts.

·       Taking feedback is the only way to improve the quality of the work.

Thank you for reading this report, wishing you and your loved ones a Blessed New year!

Source and Image Credit

Trading View, BSE INDIA, trading economics, Stockedge