Nifty stuck at 26000 - Breakout (or) Breakdown??

Markets Overview

The week saw significant pressure in the mid-cap and small-cap space, even as the headline indices tried to hold their ground. The US Federal Reserve cut rates by a quarter percent, but markets didn’t react immediately. Instead, the response came with a lag, a couple of sessions later, reflecting how sensitive sentiment currently is. Alongside this, there has been renewed chatter around the Indo-US trade deal progressing, strong performance in precious metals, and low inflation signals from the RBI.

On the surface, the setup looks constructive. Structurally, parts of the market — especially large caps — are holding up reasonably well. The Nifty has crossed the 26,000 level 17 times in the last 35 days, and repeated attempts at a resistance often increase the probability of a breakout. At the same time, the pain in small caps and micro caps continues, and that divergence remains the key worry for investors in the near term.

On the Nifty daily chart, the recent move down that started around the 1st of December has largely been retraced. From about 26,200, the index is now hovering near 26,046, suggesting that the market is essentially marking time rather than breaking down. As mentioned earlier, crossing the 26,000 mark repeatedly without follow-through reflects indecision, but also persistence. A weekly loss of about half a percent doesn’t change the bigger picture — it only reinforces the idea that the market is consolidating and perhaps building energy.

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The 12th of December brought a better day for the market, perhaps one of the best this week. The market reacted positively to renewed rumors of a US-India deal, with some reports in the papers suggesting negotiations are underway.

Furthermore, the implications of the Federal Reserve’s recent rate cut are gradually setting in, particularly the news that the Fed plans to increase the size of its balance sheet by $40 billion per month. In essence, quantitative easing (QE) is back, which explains why precious metals, especially gold and silver, are soaring.

The equity markets also showed signs of stabilization today.

Rebalance Update for the week