Trade Setup: Avoid creating shorts, selective approach advised

The Indian equity markets ended 2021 on a strong note. On Friday, the markets opened higher, maintained their gains and ended the day on a buoyant note. The Nifty saw a positive start to the day, which ensured the Index was opening above its crucial resistance levels.

After opening on the positive note, the index spent the entire session in a defined and capped range, although it kept marking incremental highs.

Importantly, there was no sign of any profit-booking. The Nifty maintained its gains throughout the day and ended on a buoyant note putting on 150.10 points (+0.87%).

The Indian equities will not have any major global cues as major markets will be shut on year-end holidays. However, F&O data suggests that the Nifty is unlikely to see any major downsides.

At the most, it could be consolidated in a defined range in the absence of any major participation.

The Nifty January month futures added over 6.70 lakh shares or 6.98% in Net Open Interest. In the same breath, the highest Call OI still exists at 17500 followed by 17600. This means that the level of 17,500 may offer some resistance. If it is taken out forcefully, some more incremental upsides can be expected.

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Monday is likely to see a quiet start to the day. The levels of 17,440 and 17,500 are likely to act as resistance points. The supports will come in at 17,280 and 17,200 levels. The RSI has marked a new 14-period high, which is bullish. It also remains neutral and does not show any divergence against the price. The daily MACD is bullish and stays above the signal line.

Going by the pattern analysis, the Nifty has halted its up move precisely at an important pattern resistance trend line which falls near 17,415. This also coincides with the 100-DMA, which presently stands at 17,425. So, in a way, the levels of 17,425 is likely to pose some short-term resistance to the index on a closing basis. In other words, the zone of 17,425-17,500 becomes an immediate resistance zone for the markets.

Despite the undercurrents remaining buoyant, it would not be a surprise if the index comes under some short-term consolidation near this zone. In either case, the underlying buoyancy remains intact. It is strongly recommended to avoid creating shorts.

Any downside, if at all it happens due to any consolidation, must be used for making select purchases. It is expected that stocks like pharma, metals, IT and pockets of consumption may do relatively better. A selective approach is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)