Trade setup: Market to move in defined range; short positions should be avoided

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Much on the anticipated lines, the Indian equities stepped into the new year on a very strong note. Nifty opened higher, got stronger, and while maintaining all its gains, ended the day on a strong note.

In the previous technical note, it was mentioned that if Nifty is able to successfully move past the 17450-17500 levels, it has a capacity to pile up some more incremental gains. Following a gap up start to the first trading session of CY22, Nifty moved past 100-DMA. Not only this, it maintained its gains until the end and ended with a net gain of 271.65 points (1.57 per cent).

From a technical perspective, few important things happened. Nifty moved past the 100-DMA on a closing basis. The 100-DMA is presently at 17,439 and it is the nearest important support for the markets now in the near term on the closing basis.

Not only this, the surge also saw Nifty moving past the 50-DMA as well which presently stands at 17,505.

In other words, Monday’s session has created an important support zone of 17,440-17,500 levels. So long as Nifty keeps its head above this point, it will continue staying inherently buoyant.

The risk-on approach was evident as stocks like financials, metal and autos relatively performed better. The volatility rose slightly; India VIX climbed 1.41 per cent to 16.4525.

Tuesday is likely to see the levels of 17,650 and 17,745 levels. Support is expected to come in at 17,570 and 17,500 levels.

The Relative Strength Index on the daily chart is 59.65; it has marked a new 14-period high which is bullish. The RSI is neutral and does not show any divergence against the price. The daily MACD is bullish and stays above the signal line.

ETMarkets.com

A large white candle emerged; it showed a buoyant directional consensus of the market participants. The pattern analysis shows that Nifty has now navigated above all its key moving averages.

After the previous session, it has moved past the 100-, and 50-DMA as well. In the process, it has dragged its support zone higher at 17,450-17,500 levels. So long as the index is above 17,450-17,500 zone, it will at the most consolidate and not get significantly weak. Incremental weakness can be expected only if the Index slips below this zone.

The options data also present a strong picture. There was significant Put writing seen between 17,400 and 17,600 levels. The level of 17,500 saw highest Put writing happening; it saw OI addition of over 4.1 million shares. This means that unless there is a tactical shift, the level of 17,500 is likely to act as strong support in the immediate short term.

US markets are closed on Monday following the new year holiday. We will not have any overnight cues to deal with as we step into Tuesday’s session.

Markets are expected to either extended their up move or consolidate in a broad and defined range. Shorts must be strictly avoided. While continuing to use all opportunities to make select entries, a cautiously positive approach is advised for the day.

(The author 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)