Trade Setup for February 6: Nifty respecting support zone but risks another leg down

The entire week has been the perfect battle between the optimist and the pessimist on how to view the market. The optimist would say we are up over 800 points for the week, the pessimist would say the Nifty is down 700 points from Tuesday's high. Not just that, it even failed to make a new high, unlike the Nifty Bank. The optimist would say that had it not been for IT, the index would have been much higher, while the pessimist would say had it not been for the other index heavyweights, the index would have been much lower. It all boils down to how you view the week gone by.

Price action so far has made two things very clear. One, the index bulls still have no conviction at higher levels, as has been the case since Tuesday. Two, while conviction is absent at higher levels, the bulls are still fighting to defend key support levels. That level now becomes 25,600. There were multiple attempts by the bears to break below that level, they did it too for a brief while on Wednesday, but the level was protected by close. Below 25,600, the psychological support of 25,500 will also be key.

IT has almost become a no-go zone, and while many analysts believe that the sell-off and the fears surrounding the companies are premature and overdone, the conviction on the street is missing. The IT index reversed the initial gains made on Thursday and ended in the red. The overnight session on Wall Street may act as a precursor to what transpires on Dalal Street during the final trading session of the week.

The Nifty has made a lower high for the second day running. 25,755, which was Thursday's high will now become the first level to check on the upside. Then comes the congestion zone, which is Wednesday's high of 25,818 to 26,000, which is now some distance away.

All eyes tomorrow will be on the Reserve Bank of India's Monetary Policy Committee, as they announce their first policy decision of 2026. More than the repo rate action, which is most likely to be a status quo, the focus will be on the MPC's liquidity management stance and future outlook, particularly after the trade deals signed with the US and the EU.

Earnings reactions are also aplenty on Friday with Bharti Airtel, Tata Motors PV, Kaynes Tech, LIC, Hero MotoCorp, NCC, Mazagon Dock, among others will be reacting to their quarterly results, while BEML, Bosch, Tata Steel, Coal India, Ethos, GNA Axles, Kalyan Jewellers, MRF, Solara Active Pharma among many others will be reporting their results on Friday.

"Going ahead, for Nifty, the 20-day EMA zone of 25530-25500 will act as immediate support for the index. On the upside, the zone of 25750-25800 will act as a crucial hurdle for the index. Any sustainable move above 25800 will lead to a further upside rally upto 25950 level, followed by 26100 in the short term," said Sudeep Shah of SBI Securities.

"Nifty is holding above the crucial support zone of 25500, where the 20DEMA and 89DEMA converge. Below this, a strong support is placed around the 25250 mark, which coincides with the 200DEMA, the bullish gap left  and the 61.8% retracement of the entire upmove from the Budget day low. On the upside, 25750–25850 remains an immediate resistance zone, followed by the psychological 26000 mark. Traders are advised to keep a close watch on these levels and structure their trades accordingly," Rajesh Bhosale of Angel One said.

The Nifty Bank continues to hold its head above water, managing to defend the 60,000 mark on the downside, and that will be the index to watch during the RBI policy, as the MPC's liquidity management decisions could influence the direction of the index. The 60,300 - 60,400 zone is turning out to be a resistance band for the index for now.

"On the downside, 59,800 remains the immediate support, followed by 59,600, which coincides with the 50-day moving average. On the upside, 60,300–60,350 remains the immediate resistance band, followed by 60,500," Om Mehra of SAMCO Securities said.