Trade Setup for October 9: 25,000 holds the key for Nifty as TCS begins Q2 results season

If one can pick up Tuesday's trading session and put it in a xerox machine, the outcome will be what happened with the Nifty on Wednesday.

A scene-by-scene copy is what transpired with the Nifty on Wednesday with the index opening higher, surging to the day's high in the first few minutes of the trading session, the recovery gets sold into, the dip gets bought, and the subsequent recovery also gets sold into, and the index ends near the lowest point of the day.

The Nifty bulls have the underperforming IT stocks to thank for ensuring that the downside was capped on Wednesday. Every constituent of the Nifty IT index ended with gains in mid-week trading, including TCS, which continued its rebound from the 52-week low it fell to on October 1.

Two things that the bulls will not like from Wednesday's session, apart from the fact that there is profit booking emerging at higher levels. First, the streak of higher highs and higher lows was broken on Wednesday with the Nifty making a lower high, as well as a lower low. The second bit being that for the second day in a row, the index has closed near the lowest point of the day, and significantly below the intraday high.

The only positive, if any, is the fact that the Nifty managed to defend 25,000 yet again. That now becomes the crucial level to watch out for going into the BSE weekly contracts expiry session. Before aiming for Tuesday's swing high of 25,220, the Nifty now will have to cross the 25,150 - 25,200 zone, which is where the resistance emerged fro on Wednesday.

The Nifty Bank also made a lower high and a lower low on Wednesday, and somehow managed to stay above the mark of 56,000 towards the close of trade. The index is now down 500 points from the recent swing high of 56,502 and also snapped a six-day winning streak. For the banking index, the 56,300 mark becomes the first important level on the upside to watch, while the 56,000 - 55,800 zone now on the downside will be an area where the index could look for support.

"Although the medium-term outlook remains steady, the combination of an extended rally and rejection from the upper band points to a potential cooling-off phase in the coming sessions," Om Mehra of SAMCO Securities said. "The support is seen near 55,650, followed by 55,500, whereas resistance is placed at 56,300–56,400," he added.

Earnings season begins in full earnest from Thursday, with India's largest IT services company TCS kickstarting proceedings for the Nifty 50 companies. Along with TCS, Tata Elxsi and GM Breweries will also be reporting their results.

Nagaraj Shetti of HDFC Securities believes that the near-term Nifty uptrend remains intact and that the present consolidation would be completed around the 25,000 - 24,900 levels. 25,200 on the upside is a key overhead resistance.

As long as the Nifty trades below the 25,150 mark, the weakness may persist on the index and may extend to levels of 25,000 - 24,950 levels, Shrikant Chouhan of Kotak Securities said, adding that a break below 24,950 can even drag the index lower to 24,850 levels. On the other hand, a move above 25,150 can take the index back to 25,250 - 25,300 levels. "The intraday market texture is non-directional and volatile; hence, level-based trading would be an ideal strategy for day traders," he said.