Trade Setup for February 9: Nifty may react to contours of India-US trade deal, Wall Street rebound

A 200-point recovery from the lows of the day makes a couple of things pretty clear. One, the bulls don't want the Nifty to slip below the 25,500 mark, and two, the index heavyweights are not throwing in the towel just yet, ensuring that the Nifty manages to respect key supports, even if it struggles at higher levels.

However, the start new week may just give the Nifty a reason or two to move higher, one being the contours of the India-US trade deal being released over the weekend, which makes things clear as to who gets what. So that is one overhang out of the way, and two, the rebound seen on Wall Street on Friday, which could provide some relief rally to the IT names, having seen their worst week in the last four months.

Although the Nifty is still over 650 points away from last Tuesday's high of 26,341, the trend appears to be upwards with every dip over the last two sessions getting bought into. However, one needs to still be mindful of the fact that the Nifty has still made a lower high and a lower low on the chart for yet another day, and that streak will first have to be broken for the index to sustain at higher levels.

The bulls would take heart from the fact that the Nifty ended near the day's high on Friday after falling below the 25,500 mark. Thursday's high of 25,757, followed by Wednesday's high of 25,818 are the first two levels to watch on the upside, followed by the next important mark of 26,000, which could act as a make-or-break level for the index this week. On the downside, no prizes for guessing, but the 25,500 mark continues to remain the most important level.

With the earnings season in its final legs, all eyes will be on how the index constituents perform as a long list of companies will be reporting their results in the upcoming week, including Hindalco, ONGC, among others. You can check that entire list here. The market will once again look for directional cues once the earnings come to an end.

"The index has been consolidating over the last few sessions. On the lower end, support is placed at 25,500, while on the higher end, resistance is seen around 25,700. In the short term, the index is likely to remain range-bound between 25,500 and 25,700. A decisive breakout on either side of this range could trigger a directional move," Rupak De of LKP Securities said.

According to Nagaraj Shetti of HDFC Securities, "The huge opening upside gap of 3rd Feb is still partially filled after four sessions its formation. If this gap remains partially filled for the next couple of sessions, then that could be considered as a 'bullish runaway gap', which is more often formed in the middle of uptrend. Hence, a sustainable move above 25,800 could pull Nifty towards 26,000 and next 26,350 levels in the near-term. Immediate support is placed at 25,500."

The other positive aspect of the market would be the resilience shown by the Nifty Bank last week and despite every single dip that occurred, the index managed to close above the mark of 60,000, consecutively, for the last four trading sessions. That level remains key for the index to hold, as the record high made last week, of 61,764, still remains some distance away.

Sudeep Shah of SBI Securities believes that for the Nifty Bank, the immediate resistance is placed in the 60,300 – 60,400 zone, making it a crucial supply area to watch. Any sustained move above this zone could lead to Index continuing its up move on the upside towards 60,800, followed by 61,200 in the near term. On the downside, the 20-day EMA zone of 59,700 – 59,600 zone is likely to act as a strong support.

"The Nifty Bank setup suggests a buy-on-dips strategy can be considered as long as the index sustains above the crucial 59,500 mark. On the downside, immediate support is placed near 59,800 levels, while resistance is seen around the 60,800 zone, where some profit booking may emerge," said Vatsal Bhuva of LKP Securities.