Trade setup: Nifty needs to top & hold 8,550 to confirm bottom

In a technically important session, Indian equity market staged a stellar rebound on Wednesday, in line with the global markets. The rally, which was fuelled by massive short covering, took Nifty back inside the crucial 7,850-8,550 zone.

The market made a shaky start, as the index rapidly pared its opening gains. After that, the 50-stock pack traded in a capped zone, but stayed volatile. However, the second half of the session saw the market gaining ground again, as the index finally ended with a gain of 516.80 points or 6.62 per cent at 8,317.85.

The price action of Nifty against the 8,550 level will be very crucial to watch out for in the coming session. For the market to mark a temporary bottom near 7,850, it will need to move past and stay above 8,550. If the market remains in the 7,850-8,550 zone, it will invite fresh volatility and face more downside. Volatility Index or India VIX, cooled off by 7.16 per cent to the 77.63 level.

On Thursday’s session, the market is expected to make a tepid start, with 8,415 and 8,550 levels acting as strong resistance. Support may come in at 8,200 and 8,115.

The Relative Strength Index (RSI) on the daily chart was at 30.98 and crossed above the 30 level from the oversold area, which is bullish. The indicator remained neutral, not showing any divergence against the price.

The daily MACD was bearish and traded below its signal line. A large white body emerged on the candles. This signifies a robust directional bias during the session.

As per pattern analysis, Nifty is attempting to confirm a temporary bottom near the 7,850 level despite short-term violations in the past. It would be crucial to see how Nifty deals with the 8,550 mark, which is the upper area of the broadly defined consolidation zone.

Some modest incremental upsides cannot be ruled out if there is no overnight weakness to deal with. It is important to note that Nifty has just attempted and not yet confirmed the bottom near 7,850. For confirmation, it will need to move past and stay above 8,550. If the index is not able to move past the 8,550 mark, it will continue to oscillate and consolidate in the broad 7,850-8,850 zone.

We would recommend traders to exercise patience and do not create heavy exposures unless a temporary bottom is confirmed. A cautious approach 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)