The Nifty 50 found crucial support near the 26,000 level during the latest trading session, with the index maintaining its position above the 21 EMA. As markets transition into the new calendar year, the upcoming December F&O expiry is expected to introduce heightened volatility, while key domestic data releases will provide directional cues for market participants.

Technical Analysis and Support Levels

According to technical analysts, the Nifty's ability to hold above 26,000 decisively will be crucial for near-term trend improvement. The index is positioned to retrace towards 26,200 and higher levels, provided the current support zone remains intact. However, a sustained move below 26,000 could trigger further weakness in the broader market.

Rohan Shah from Asit C. Mehta Investment Intermediates notes that the Nifty continues to hover within a well-defined range of 25,700-26,300 near its all-time highs. The index is expected to undergo further consolidation before registering a decisive breakout, with sector-specific opportunities likely to emerge during this phase.

F&O Expiry and Market Volatility

The upcoming week marks a significant transition as markets enter calendar year 2026, coinciding with the December F&O expiry. This combination is expected to bring increased volatility as traders adjust their positions ahead of the monthly settlement.

The India VIX, which measures market fear, declined 0.40% to settle at 9.15 levels, indicating relatively low volatility expectations despite the approaching expiry.

Key Data Points and Market Drivers

Several important domestic data releases are scheduled for the upcoming period, which could provide directional momentum to the markets. Investors will closely monitor Industrial Production data for November, government budget value figures, external debt statistics, and the final HSBC Manufacturing PMI reading.

FII/DII Activity and Currency Movement

Foreign portfolio investors were net sellers worth ₹318.00 crore during the latest session, while domestic institutional investors provided support with net purchases of ₹1,772.00 crore. The rupee depreciated 19 paise to close at 89.90 against the US dollar, tracking negative trends in domestic equities and foreign fund outflows.

Market Outlook and Trading Strategy

Analysts expect the current consolidation phase to continue, with the Nifty's ability to sustain above 26,000 being critical for any upward momentum. A decisive break above 26,200 could attract fresh buying interest, potentially pushing the index towards the 26,350-26,500 range. Conversely, failure to hold 26,000 support may lead to a test of lower levels around 25,700-25,910.

Markets posted modest gains in a holiday-shortened week, with the Nifty closing at 26,042.30, registering a weekly gain of 0.29%. The benchmark index remained range-bound amid mixed global signals and low year-end trading volumes, but technical analysts are raising caution flags as the India VIX plunged to record lows, potentially masking underlying market vulnerabilities.

Narrowest Trading Range Masks Growing Market Complacency

The holiday-induced slowdown was clearly visible as the Nifty traded within an exceptionally narrow range of just 227.80 points during the week, oscillating between a high of 26,236.40 and a low of 26,008.60. This marked the tightest weekly range recorded since November 2023, reflecting subdued participation and lack of directional conviction.

A critical development was India VIX slipping by 3.91% on a weekly basis to close at 9.15, marking its lowest-ever level. While this typically indicates calm among market participants, technical experts warn that extremely low VIX readings often signal complacency and can precede sharp volatility spikes.

Technical Structure Shows Stalling Rather Than Trending

Despite trading near lifetime highs, the Nifty appears caught in a zone of indecision with visible momentum squeeze and persistent weakness in broader market breadth. The Nifty 500 continues to lag, remaining nearly 3% away from its own high, highlighting the lack of broad-based participation.

The weekly RSI stands at 60.84 and remains neutral, showing no divergence against price. The weekly MACD remains above the signal line but histogram bars are narrowing, reflecting waning momentum. From a pattern perspective, Nifty has broken out above a large symmetrical triangle on longer timeframes and is consolidating above its breakout zone.

Sectoral Rotation Reveals Mixed Signals

Relative Rotation Graph analysis against the CNX500 shows distinct sectoral positioning. Financial Services, Midcap 100, PSU Bank, Bank Nifty, and Infrastructure indices occupy the leading quadrant, though some momentum slowdown is visible in Financial Services and Banks.

The IT Index stands as the only sector in the improving quadrant, moving strongly toward the leading quadrant while maintaining resilient relative momentum. Meanwhile, the Media Index has begun showing sharp improvement after prolonged relative underperformance.

Risk Management Takes Priority Amid Low Volatility Warning

Technical analysts emphasize that the current market structure suggests stalling rather than active trending. The combination of record-low VIX readings and narrow trading ranges creates a deceptive calm that often precedes significant market moves. The index lacks follow-through despite attempting to stay above upper breakout zones.

Given the technical landscape, experts recommend avoiding aggressive index-level exposures and adopting a stock-specific approach focusing on relative strength. With extremely low volatility and lack of broad-based participation, protecting profits should take priority over chasing extended moves. Traders are advised to maintain trailing stops and wait for either a decisive breakout above 26,250 or a healthy pullback before committing fresh capital.