Market Outlook for Thursday: Trade setup: Nifty must top 9,050-9,100 for next leg of rally

In the previous market note, it was mentioned the importance of the 9,050-9,100 zone, and the kind of resistance that it can give to NSE Nifty. Indian equity market enjoyed a strong start to the trade, as it opened after a day’s gap on Wednesday. Unfortunately, Dalal Street failed to capitalise on the strong opening, and from the high point of the day, the headline index fell nearly 400 points. It finally ended with a loss of 68.55 points or 0.76 per cent at 8,925.30.

With Nifty failing to keep its head above 9,050-9,100, this zone has reinforced itself as a strong resistance area. The index moving past this zone will continue to remain crucially important if the market has to see any kind of upmove. Until this happens, the index will be vulnerable at higher levels.

Thursday’s session is expected to see a soft start, with 9,000 and 9,070 levels acting as the resistance. Support may come in at 8,830 and 8,775.

The Relative Strength Index (RSI) on the daily chart was at 45.54 and stayed neutral, showing no any divergence against the price. The indicator is seen resisting a trend line that joined its lower tops formed over the past couple of days.

The daily MACD was bullish and traded above its signal line. An engulfing bearish pattern was formed on the charts. The emergence of this pattern near 9,050-9,100 reinforces the credibility of this area as a strong resistance zone.

With Nifty failing to move past the 9050-9100 zone, the index will continue to remain vulnerable at higher levels. The weekly options expiry will also dominate the trade as 9,000 has the maximum concentration of Call open interest, which can act as a resistance unless a tactical shift occurs. We would advise traders to continue to avoid fresh long positions unless the index moves past the important resistance levels. A cautious view is advised for the day.

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