Trade setup for October 9: 25,000 holds key to Nifty as TCS begins Q2 earnings season

If one can take Tuesday’s trading session and put it into a Xerox machine, the result will be what happened with the Nifty on Wednesday.

A scene-by-scene copy is what happened with the Nifty on Wednesday with the index opening higher, hitting the high of the day in the first few minutes of the trading session, the rally is sold, the dip is bought, and the subsequent rally is also sold, and the index ends near the lowest point of the day.

The Nifty Bulls have underperforming IT stocks to thank for ensuring the decline is capped on Wednesday. Every component of the Nifty IT index ended with gains mid-week, including the TCS, which continued its rebound from the 52-week low it fell to on October 1.

Two things the bulls won’t like in Wednesday’s session, aside from profit booking emerging at higher levels. First, the streak of higher highs and higher lows was broken on Wednesday with the Nifty hitting a lower high and lower low. The second element is that, for the second day in a row, the index closed near the lowest point of the day and significantly below the intraday high. The only bright spot, if any, is the fact that the Nifty once again managed to defend 25,000. This now becomes the crucial level to watch ahead of the weekly BSE contract expiration session. Before targeting Tuesday’s high of 25,220, the Nifty will now have to cross the 25,150-25,200 zone, from where resistance emerged on Wednesday.

Nifty Bank also hit a lower high and lower low on Wednesday, and somehow managed to stay above the 56,000 mark towards close of trade. The index is now down 500 points from the recent high of 56,502 and has also ended a six-game winning streak. For the banking index, the 56,300 mark becomes the first significant upside level to watch, while the now bearish 56,000 – 55,800 area will be an area where the index could seek support.

“Even though the medium-term outlook remains stable, the combination of an extended rally and a rejection from the upper band points to a potential cooling phase in the coming sessions,” said Om Mehra of SAMCO Securities. “Support is near 55,650, followed by 55,500, while resistance lies between 56,300 and 56,400,” he added.

The earnings season begins in earnest from Thursday, with India’s largest IT services company TCS kicking off proceedings for Nifty 50 companies. Along with TCS, Tata Elxsi and GM Breweries will also release their results.

Nagaraj Shetti of HDFC Securities believes that the near-term uptrend of Nifty remains intact and the current consolidation would complete around the levels of 25000 to 24900. 25200 on the upside is a key overhead resistance.

As long as the Nifty trades below the 25,150 mark, the weakness in the index may persist and extend to levels of 25,000-24,950, said Shrikant Chouhan of Kotak Securities, adding that a break below 24,950 may even send the index down to 24,850 levels. On the other hand, a move above 25,150 can take the index back to the levels of 25,250 to 25,300. “The intraday market texture is non-directional and volatile; hence, level-based trading would be an ideal strategy for day traders,” he said.