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Trade setup for Thursday: Trade setup: Nifty needs to hold above 10,400 mark to rally more

The oversold market witnessed a relief rally on Wednesday, as Nifty saw across the board pullback with all the sectors except IT ending with gains of up to 5.5%. The NSE benchmark Nifty sustained gains throughout the session and ended 159.05 points or 1.54 per cent higher.

We step into Thursday’s trade with optimism, as there are greater chances that the market may continue with its pullback. In event of any consolidation, it would be critically important for market to trade above the 10,400 mark.

The most interesting thing that was seen on Wednesday was that the pullback has not yet entirely come on the back of short covering. The market saw buying at lower levels as well as open interest was seen being added.

Thursday is likely to see the levels of 10,495 and 10,560 acting as immediate resistance area. Supports may come in at 10,400 and 10,350 zones.

The RSI on the daily chart is 30.9745. Though it remains neutral showing no divergence against the price, it has just crossed above the oversold area, which is bullish.

Daily MACD is now seen flattening its trajectory. Apart from a white body that emerged on the candles, no significant formations were observed.

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Of late, the market had got deeply oversold and more so during the last couple of sessions, and the pullback that we saw on Wednesday was in fact long overdue.

It is a positive sign that the pullback has not come just on account of short covering. For Thursday and subsequent sessions, we expect the market to continue its pullback and also consolidate in a broad range with a positive bias. If market is to form a base in the current zone, some broad consolidation cannot be ruled out.

We recommend keeping making select purchases in event of any consolidation. The levels of 10,350-10,400 would be crucial and Nifty will have to trade above this to prevent weakness from creeping in again. While continuing a cautious approach, positive outlook is advised for the day.

STOCKS TO WATCH: Long positions were seen being added in Ashok Leyland, NCC, Vedanta, Hindustan Zinc, Bajaj Finserv, Bajaj Finance, Axis Bank, State Bank of India, ICICI Bank, Bharti Airtel, National Aluminum, IOC and Kotak Bank.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)




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