The Nifty 50 broke its five-day losing streak on January 12, posting gains of 0.4% as strong buying interest emerged at lower levels. The recovery was supported by favourable remarks on trade deals from the US Ambassador, providing market participants with renewed optimism.

Technical Pattern Signals Potential Reversal

The index formed a bullish Piercing Line pattern on January 12, characterized by a bullish candle with a long lower shadow on daily charts. This formation indicates strong buying interest at lower levels and resembles a bullish reversal pattern, though confirmation in subsequent sessions remains crucial.

While short-term buying interest has emerged, broader momentum remains weak, calling for cautious optimism among traders.

Key Resistance and Support Levels

If the Nifty extends its gains, the 25,950-26,000 zone will serve as key resistance. A decisive rally above this level could strengthen the bulls' position significantly. Until then, consolidation with range-bound trading may continue.

Options Data Reveals Market Sentiment

The options market provides crucial insights into trader positioning and market expectations. Maximum Call open interest was observed at the 26,000 strike with 1.6 crore contracts, acting as key resistance. On the Put side, the 25,500 strike holds maximum interest with 1.44 crore contracts, serving as key support.

The Nifty Put-Call ratio rose to 0.9 on January 12, compared to 0.62 in the previous session, indicating improving bullish sentiment as traders sell more Put options than Call options.

Market Breadth and Volatility Indicators

Market participation showed mixed signals with 76 stocks experiencing long build-up while 61 stocks saw short build-up. Additionally, 44 stocks witnessed short-covering, and 30 stocks experienced long unwinding.

The India VIX extended its uptrend for the third consecutive session, climbing 4.05% to 11.37. This represents a continuation of the 15.6% rally from the previous week, signalling increased caution and potential discomfort for bullish positions.

F&O Ban and Delivery Trades

Currently, SAIL and Sammaan Capital remain under the F&O ban, with no new additions or removals on January 12. High delivery trades indicate genuine investing interest as opposed to speculative trading activity in select stocks.

The technical setup suggests cautious optimism, with the Piercing Line pattern offering hope for uptrend continuation, though momentum indicators need to align with bullish sentiment for sustained market recovery.

The benchmark Nifty 50 index stands at a critical technical juncture as traders prepare for the weekly expiry session, with analysts suggesting a cautious approach amid mixed market signals. After experiencing a sharp 900-point decline over five sessions, the index is showing signs of buying demand from oversold territory, presenting both opportunities and challenges for market participants.

Technical Analysis and Key Levels

From a technical perspective, the Nifty 50 faces significant resistance levels that could determine its near-term direction. According to Osho Krishan, chief manager of technical and derivative research at Angel One, the 50-Double Exponential Moving Average at 25,900 is expected to serve as an intermediate hurdle.

Shrikant Chouhan, head of equity research at Kotak Securities, identifies 25,650 and 25,600 as key support zones, while 25,900-25,950 could serve as immediate resistance areas. A decisive breakthrough above the 26,000 mark, which coincides with the 20-DEMA, could reignite bullish sentiment in upcoming sessions.

Banking Sector Outlook

The Nifty Bank index is expected to continue its consolidation phase within a defined range. Analysts at Bajaj Broking anticipate the banking index to remain within the 58,700–60,000 range in the near term.

The support zone at 59,000–58,700 represents a confluence of the 50-day exponential moving average and the previous month's low, making it a crucial level for market participants to monitor.

Market Performance and Foreign Investment Flows

Indian equity markets demonstrated resilience on Monday, recovering from intraday lows following improved investor confidence. The recovery was attributed to favorable comments from the new US Ambassador regarding a potential trade deal ahead of upcoming negotiations.

In the broader market segments, midcap stocks ended flat while the small-cap index declined by 0.50%. However, Foreign Portfolio Investors continued their selling pressure, marking the sixth consecutive session of outflows with net sales of ₹3,638.40 crore according to provisional data from the National Stock Exchange.

Trading Strategy and Market Outlook

Given the current technical setup and market conditions, analysts recommend a buy-on-dips and sell-on-rallies approach for day traders. The index's position in extreme oversold territory after the recent decline suggests potential for tactical buying opportunities at lower levels, while resistance levels provide natural profit-booking zones for short-term traders.