Vijay L. Bhambwani's Ticker: Expiry and year-end can cap gains

A happy New Year 2026 in advance!

Last week, I wrote that the Nifty was headed for a decisive phase and bulls still had a fighting chance of pushing prices here. A short trading week typically favours bulls as historical evidence has shown. Read last week’s article here. The bulls attempted to boost prices, but with limited success. The broad-based Nifty rallied mildly, whereas the Bank Nifty slipped. Global markets appeared nervous as bullion saw unprecedented safe-haven buying.

The trigger was the escalation of hostilities in Eastern Europe. As hopes of a quick peace between Ukraine and Russia receded into the background, profit-taking emerged in financial assets (equities and bonds). As I expected, pubic sector undertakings (PSUs), especially railway-related stocks, gained ground in late trade last week. This week is a unique one as it is the monthly expiry of the January derivatives series and the calendar year-end. That means trader participation is likely to be low. That results in wider bid/offer spreads (the difference in limit price orders between buyers and sellers). This translates into lower take-home profits for traders.

This week too, I expect public sector undertaking stocks (especially banks) to attract the attention of traders. As it is a month-end, we may see extended short covering in industrial metals. Coupled with the existing price rise in metals, this may trigger bullishness in the stock prices of metal mining companies.

Bullion could see higher volatility as the stratospheric rally is likely to see large intraday ranges with bouts of profit-taking taking cum fresh buying. If you disregard the near-term volatility, the long-term ‘big picture’ outlook is still bullish. Look beyond 2026 and buy only as much as you can make a down payment for. Leveraging (buying with borrowed money) is not advisable.

Oil and gas prices are likely to fluctuate due to geopolitical factors and seasonal variations. I maintain my long-standing view that energy markets remain adequately supplied, and any big rallies, if they occur, will likely be sold into.

Being a laid-back week holiday coinciding with a monthly expiry, initiate fresh trades with small exposure and maintain stop losses with tail risk (Hacienda) hedges in place.

Fixed-income investors should keep their powder dry and await better yields.

A tutorial video on tail risk (Hacienda) hedges is here.

Rear View Mirror

Let us assess what happened last week so we can guesstimate what to expect in the coming week.

The broad-based Nifty 50 rallied mildly, but the Bank Nifty slipped marginally. Bullion witnessed safe haven buying as fiat currencies lost favour across the world. Oil rose as Ukraine and Russia continued to target each other’s energy infrastructure. Gas prices fell as the weather-related buying enthusiasm eased.

The US dollar index (DXY) eased, and that was a boost to emerging markets (including India) and hard assets. The rupee slipped against the weakening dollar, which spooked domestic bulls. Indian 10-year benchmark bonds eased, which cushioned banking stocks.

The NSE market capitalisation rose mildly, indicating broad-based enthusiasm, albeit limited in nature. Market-wide position limits (MWPL) rose mildly on a routine basis. US indices rose uniformly, which provided tailwinds to our markets.

Retail Risk Appetit

I use a simple yet highly accurate yardstick for measuring the conviction levels of retail traders—where are they deploying money? I measure the percentage of turnover contributed by the lower- and higher-risk instruments.

If they trade more of futures, which require sizable capital, their risk appetite is higher. Within the futures space, index futures tend to be less volatile than stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week) –

We saw the high-risk, capital-intensive futures segment contribute higher turnover last week. This is partially due to the approaching expiry, where traders roll over their open positions to the next month. In the relatively lower-risk options segment, the turnover contribution increased in the relatively higher-volatility stocks segment.

Overall risk appetite was higher.

Matryoshka Analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator calculates the ratio of rising stocks to falling stocks. As long as the number of gaining stocks exceeds the number of losers, the bulls are dominant. This metric gauges the risk appetite of one marshmallow traders. These are pure intraday traders.

The Nifty clocked 0.29% gains after three weeks of consecutive losses. The intraday buying conviction jumped to 1.51 (from 1.03 the previous week), indicating that there were 151 gaining stocks for every 100 losers. As long as this metric remains above 1.0 with rising prices, the outlook remains optimistic.

A tutorial video on the Marshmallow theory in trading is here: www.youtube.com/watch?v=gFNKvtsCwFY

The second chart I share is the market-wide position limits. This measures the amount of exposure utilized by traders in the derivatives (F&O) space as a component of the total exposure allowed by the regulator. This metric is a gauge of the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session/s.

The MWPL reading went up marginally as the approaching expiry meant traders were preoccupied with rollover and/or the expiry process. This level is higher than ever seen before and is likely to trigger bigger price moves as larger positions get shifted and/or squared up. We need to watch the post-expiry lows for signs of optimism levels.

A dedicated tutorial video on how to interpret MWPL data in more ways than one is available here - https://www.youtube.com/watch?v=t2qbGuk7qrI

The third chart I share is my in-house indicator ‘impetus.’ It measures the force in any price move. Last week, both indices moved in divergence, but impetus readings were higher. That tells us there were moves in the undertone that attempted to push prices either way, but the weekly ranges were compressed. These could be a precursor to a bigger move in the offing.

The final chart I share is my in-house indicator ‘LWTD.’ It computes lift, weight, thrust and drag encountered by any security. These are four forces that any powered aircraft faces during flight, so applying them to traded securities helps a trader estimate prevalent sentiments.

Last week, the Nifty logged gains after three weeks of losses as the LWTD indicator had predicted. Now we see the LWTD fall to 0.16 (from 0.57 in the prior week), which implies that the possibility of fresh buying support may be limited. Though short covering can always occur, it takes fresh buying to propel markets to new highs. In any case, expiry weeks are unlikely to see big-ticket buying. The real trends will emerge in the latter half of the week.

A tutorial video on interpreting the LWTD indicator is here - https://www.youtube.com/watch?v=yag076z1ADk

Nifty's Verdict

The weekly chart of the Nifty shows an inverted hammer. This occurs when the price opens at the lower end of the weekly range, attempts to rally, and then closes at the lower end of the range. Since bulls surrender all their intra-week gains, this pattern indicates weakness. By itself, it may not be a conclusive indicator. But follow-up action determines the outlook.

Sustained trade below the weekly low (26,008) opens the door to fresh weakness. On the other hand, a consistent close above the weekly high (26,236) can trigger a rally. The price remains above the 25-week average, which is a proxy for the six-month holding cost of an average investor. That means the medium-term outlook is currently optimistic.

Last week’s hurdle at 26,325 remains in place as a resistance and must be overcome to signal the next round of bullishness.

Your Call to Action

Only a sustained trade above the 26,325 level confirms the possibility of a fresh rally. In the event of declines, the 25,450 level needs to be defended.

Last week, I estimated ranges between 60,175 – 57,975 and 26,475 – 25,450 on the Bank Nifty and Nifty, respectively. Both indices traded within their specified ranges.

This week, I estimate the ranges to be between 60,000 – 58,025 and 26,500 – 25,600 on the Bank Nifty and Nifty, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than 8 ticks.

Have a profitable week.

Vijay L. Bhambwani