What Factors Should Markets Watch as Year-End Volatility Peaks?

This environment is not about chasing trends. It is about understanding which forces are pushing and pulling markets, and how those forces interact across asset classes. From geopolitics to central bank communication, from metals to volatility indices, today’s market setup demands a holistic reading rather than a narrow technical view.

One of the most prominent global factors today is renewed political noise from the United States. Statements around leadership of the Federal Reserve and strong reactions to geopolitical reports have added an element of unpredictability. While markets have learned to discount rhetoric over time, such comments still influence short-term sentiment, especially when they coincide with important data releases.

The Federal Reserve is scheduled to release the minutes of its latest policy meeting today. These minutes are closely watched not for immediate policy changes, but for nuances around inflation, growth concerns, and the future path of interest rates. In thin year-end markets, even subtle shifts in tone can trigger outsized reactions across currencies, bonds, and equities.

Geopolitically, the situation remains complex. Skirmishes between Ukraine and Russia have intensified, even as diplomatic efforts continue in parallel. Markets typically struggle to price such dual narratives of conflict and dialogue. The result is a persistent risk premium rather than a decisive trend.

Oil prices are reflecting this balance. Crude continues to hold gains despite ongoing concerns about a potential supply glut. Prices hovering in the $61 to $63 per barrel range suggest that geopolitical support is offsetting fears of oversupply and demand moderation. For equity markets, stable but elevated energy prices can be a double-edged sword, supporting energy stocks while raising input cost concerns elsewhere.

Precious metals and alternative assets are another focal point. Silver has steadied after witnessing its biggest one-day fall in more than five years. However, stability should not be mistaken for calm. Silver, gold, and palladium remain volatile, reflecting rapid shifts in positioning rather than changes in long-term fundamentals.

Bitcoin slipping below $88,000 adds to the sense of caution. Increased redemptions suggest that some investors are reducing exposure to higher-risk assets as the year closes. This does not necessarily indicate a structural breakdown, but it does highlight the defensive mindset prevalent across markets.

Turning to domestic markets, the so-called Santa rally is clearly losing fizz. Thin volumes are reducing follow-through, and the last Nifty expiry of the year is amplifying volatility. Year-end position squaring is a dominant theme, as both traders and institutions prioritise book closure over fresh bets.

Foreign institutional investors remain cautious. There has been a minor reduction in index shorts to around 86 percent from 89 percent, but this should not be read as a bullish shift. More importantly, FIIs have been sellers in the cash market for the fifth consecutive session, indicating sustained risk aversion toward Indian equities at current levels.

Technically, the Nifty has broken below its 20-day exponential moving average in the previous session. This breakdown shifts attention to the 50-day EMA near 25,832, which now acts as a critical support. The guidance for traders is clear: maintain only light short positions near resistance and avoid overcommitting until clarity emerges.

India VIX bouncing around six percent after three sessions of decline reinforces the message that complacency is unwarranted. Volatility often rises before price dislocations, particularly around expiry and year-end.

Bank Nifty presents an even more cautious picture. With the index hovering near its 50-day EMA around 58,506, the risk-reward for fresh trades appears unfavourable. Avoiding trades in Bank Nifty until a clearer direction emerges may be the more prudent approach.

Adding to intraday complexity is the Nifty index rejig scheduled in the last hour of trade. Autos are expected to see inflows, while private banks may witness outflows. Such rebalancing flows can distort price action temporarily, making it important not to misinterpret mechanical moves as genuine trend signals.

Finally, the derivatives landscape is changing. Today is the last day for Cyient, HFCL, NCC, and Titagarh Railways in the F&O segment. From the January series, Waaree Energies, Swiggy, Premier Energies, and Bajaj Holdings will be added. These transitions often create short-term volatility as positions are unwound and re-established.

Investor Takeaway

Derivative Pro & Nifty Expert Gulshan Khera, CFP® believes that the final trading session of the year is less about prediction and more about protection. With global cues mixed, volatility rising, and liquidity thinning, capital preservation takes precedence over return maximisation. Traders should respect key technical levels, avoid overtrading, and remain selective. Investors, meanwhile, can use any exaggerated moves to reassess allocation rather than react emotionally. For ongoing, disciplined market perspectives, readers can explore insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.

SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.