Trade setup for January 6: Near term market trend volatile; 10 key things to know before opening bell

SGX Nifty signalled tepid opening for domestic equity markets as the Nifty futures were trading lower around 17,802.50 level on the Singaporean Exchange. Asian markets are trading lower tracking weak US markets after Fed signals it may hike rates sooner than expected.

SGX Nifty was deep in red on Thursday, falling more than 100 points, signaling a negative start for Indian benchmark indices

Bulls continued to dominate Dalal street on Wednesday as Sensex reclaimed 60,000 and Nifty scaled 17,900 mark again. While Sensex closed 367 points or 0.61% up at 60223 levels, the Nifty 50 index ended the session with gains of 120 points or 0.7% at 17,925. Broader market ended on a mixed note with Nifty midcap 100 up 0.2%, and Nifty Smallcap 100 down by 0.3%. “While the market trend might be volatile in the near term on account of potential risk from Omicron variant, upcoming budget and fragile global cues, in the long run, strong earnings delivery along with positive macro-economic data would hold the key to drive markets upwards,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.

10 key things to know before market opening bell

Technical view

The upside momentum continued in the market for the third consecutive sessions on Wednesday and Nifty closed the day with handsome gains of around 120 points. After opening on a slightly positive note, the market shifted into a sustainable upmove amidst a range movement. The intraday dips in between were bought into and the market closed the day near the highs. A reasonable long bull candle was formed on the daily chart with minor upper and lower shadow. Technically this pattern indicate a continuation of an uptrend in the market and the formation of upper and lower shadow’s signal emergence of volatility at the highs. At the same time, the formation of lower shadow’s of the last two sessions bull candle indicate a buy on intraday dips action in the market, said Nagaraj Shetti, Technical Research Analyst, HDFC Securities.

However, having moved up sharply in the last four sessions, there is a possibility of a consolidation or minor downward correction from the highs. The overall market breadth seems to have tired on Wednesday after a sharp run up of the last few sessions. The broad market indices have started to consolidate at the higher levels. The nullifying of bearish pattern recently could mean sharp trend reversal on the upside and any dips from here could be a buying opportunity. The market continued with upside momentum on Wednesday, but the pace of the market seems to have reduced and the volatility has started to occur at the higher levels. There is a possibility of consolidation movement or minor weakness near 18K mark in the next 1-2 sessions, before showing further upside movement from dips, he added.

Global markets:

U.S. stocks fell on Wednesday, with the tech-heavy Nasdaq plunging more than 3%, its biggest one-day percentage drop since February 2021. The fall comes after U.S. Federal Reserve meeting minutes signaled that the central bank may raise interest rates sooner than expected. The S&P 500 index also fell more than 1%, its biggest daily percentage decline since 26 November. The Dow Jones index, which hit a record high earlier in the day, also reversed course to end over 1% lower.

Shares in Asia declined on Thursday following losses overnight in US markets. Japan’s Nikkei 225 slipped 1.56%, leading losses among the Asia’s major markets, while the Topix index also fell 1.02%. Hong Kong’s Hang Seng index dipped 0.17%. The Shanghai composite declined 0.34%, while the Shenzhen component slipped 0.577%. South Korea’s Kospi also declined 0.55%. MSCI’s broadest index of Asia-Pacific shares outside Japan was trading 0.6% lower.

Key Support, resistance level for Nifty:

Nifty rose for the fourth consecutive session on Wednesday. However, the advance decline ratio is now only marginally above 1:1 suggesting likelihood of Nifty starting to correct soon under profit taking in largecaps. 17945-18023 could be the resistance in the near term while 17827 could be a support, according to Deepak Jasani, Head of Retail Research, HDFC Securities.

Bank Nifty:

The Nifty Bank climbed 855.75 points or 2.32 percent to close at 37,695.90 on January 5. Bank nifty has support at 36800 levels while resistance is at 38000 levels.

FII and DII data

On Wednesday, foreign institutional investors (FIIs) net bought shares worth Rs 336.8 crore, while domestic institutional investors (DIIs) net purchased shares worth Rs 1,271.9 crore in the Indian equity market, according to the provisional data available on the NSE.

Call option data

Maximum Call open interest was seen at 18000 strike with 19.79 lakh contracts, followed by 17500 strike (15.48 lakh contracts), and 18500 strike (12.03 lakh contracts). Call writing was seen at 18700 strike, which accumulated 1.2 lakh contracts, followed by 17900 strike (1.14 lakh contracts), and 18500 strike (94,200 contracts).

Put option data

Maximum Put open interest was seen at 17000 strike which holds 34.27 lakh contracts, followed by 17500 strike, (27.52 lakh contracts), and 17200 strike (16.98 lakh contracts). Put writing was seen at 17800 strike, which added 3.03 lakh contracts, followed by 18000 strike, (2.87 lakh contracts), and 17900 strike (2.66 lakh contracts).

Stocks under F&O ban on NSE

Since it is the beginning of January series, there is not a single stock under the F&O ban for Thursday (January 6). Securities in the ban period under the F&O segment include companies in which the security has crossed 95 percent of the market-wide position limit.