Trade Setup for December 22: After sharp rebound, is a Santa rally on the cards for Nifty

Markets snapped a four-day losing streak on the back of strong global cues, with the Nifty ending the session near the day's high. The index gained 150 points to close at 25,966, with more than 40 stocks finishing in the green.

However, on a weekly basis, the Nifty extended its losing run for a third straight week, slipping 0.31%.

After remaining weak and range bound amid choppy trade over the past few sessions, the Nifty saw a sharp breakout on Friday. The index opened with a gap up of 96 points and extended gains in early trade.

Momentum cooled thereafter, with the market moving in a narrow range, but the positive bias persisted through the mid and later part of the session, helping the index close firmly higher.

Among Nifty stocks, Shriram Finance, Max Healthcare and BEL led the gainers, while HCL Tech, Hindalco and Kotak Bank came under selling pressure and ended as the top losers.

All sectoral indices closed in the green, with the rally led by Realty, Auto and Healthcare stocks, which emerged as the day's strongest performers.

The broader market continued to outperform the benchmarks. The Nifty Midcap 100 rose 1.20%, while the Nifty Smallcap index climbed 1.34%.

The Indian rupee extended its winning streak to a third straight session, appreciating sharply by 97 paise against the dollar to settle at 89.27, its strongest close since November 26. The rupee emerged as the best performing Asian currency, backed by strong corporate dollar inflows and a return of risk-on sentiment. With the RBI expected to remain active in the market, the near-term outlook for the dollar-rupee pair has turned bearish.

On the technical front, Nagaraj Shetti of HDFC Securities said a sustained move above the key resistance zone of 26,000 to 26,050 could open the door for an upside move towards 26,300 in the near term. On the downside, key support levels to watch are placed between 25,800 and 25,700.

Despite Friday's rebound, the market declined for a third consecutive week. During the week, the index found support near its 50 day moving average and recovered to close above the 25,900 mark.

Nilesh Jain of Centrum Broking said the immediate hurdle for the index lies near the 21 day moving average around 26,000. A sustained move above this level could trigger short covering and push the index towards 26,200.

Given the recent rebound and a breakout above the falling trend line, a Santa rally in the coming week appears possible. On the downside, Jain sees strong support around 25,700.

According to Osho Krishan of Angel One, the 25,850 to 25,800 zone is likely to cushion any intermediate decline, while the crucial support remains at 25,700, which has held firm over the past two weeks. On the upside, a decisive move above the 26,050 to 26,100 zone could provide relief to bulls and pave the way towards the lifetime resistance zone of 26,300 to 26,325.

Nandish Shah of HDFC Securities said a sustained move above 26,058 would confirm a bullish higher top, higher bottom formation on the daily chart, signalling a possible resumption of the primary uptrend. In that scenario, the Nifty could extend gains towards 26,202 and 26,330. On the downside, 25,726 now acts as a key near-term support.

Looking ahead, Rupak De of LKP Securities said 26,000 will remain a crucial level to watch. A decisive breakout above this mark could propel the index towards 26,300, while immediate support is placed at 25,900, which is expected to act as the first line of defence for the Nifty.