Trade Setup for October 6: Nifty upmove likely to be tested in IPO-heavy week

The two-day upmove witnessed by the Nifty 50 index, across Wednesday and Friday, is set to be tested as an IPO-heavy week begins, as does the earnings season for the quarter gone by.

Even though the Nifty only traded in a 150-point range on Friday, the bulls will be happy with the fact that the index ended at the highest point of the day, after a surge towards the close of the session.

The upcoming week is an important one for the index. This two day upmove will be put to test as two of the biggest IPOs of the year open for subscription simultaneously. The ₹15,500 crore IPO of Tata Capital and the ₹11,607 crore offering from LG Electronics India. That, along with the WeWork India IPO, which opened for subscription on Friday.

On Tuesday, all three IPOs will be open together for subscription, which will mark the last day for WeWork, the first day for LG and the second day for Tata Capital. Issues worth ₹30,000 crore will simultaneously be vying for investor attention.

Once these IPOs are done, there are more in the pipeline, but Thursday will not only be the last day of the LG IPO, but also the second quarter result update from India's largest IT services company, TCS, which has been in the news for the visa-related issues and the layoffs announced during the quarter. The Nifty IT index was the lead contributor to the index recovery seen during Friday's trading session.

The Nifty is very close to the 24,900 mark, which it briefly crossed intraday as well. The next important level to watch on the upside for the Nifty, is 25,017, which is the 50% retracement of the fall seen from the September 18 high of 25,448 to the September 30 low of 24,587. Further higher will be the 61.2% retracement of this downmove, which comes up to 25,113.

The Nifty Bank has been on a four-day winning run, more so since the policy announcements made by the Reserve Bank of India on Monday. Nearly every constituent of the index announced their business updates for the quarter, including HDFC Bank, Kotak Mahindra Bank, and other PSU lenders, will keep the index in the spotlight on Monday as well.

Levels-wise, unlike the Nifty, the Nifty Bank has nearly retraced its entire downmove from the September 18 high of 55,835 to the September 29 low of 54,226. Therefore, the recent swing high of 55,835 will be the next important level on the upside to watch for the banking index. On the downside, 55,300, followed by 55,000 should act as a strong support.

Rajesh Bhosale of Angel One continues to advise traders to keep buying the dips on the index. Immediate support for the Nifty lies at 24,730, followed by 24,600. The 50% and 61.2% retracement levels highlighted earlier, will act as the resistance for the index. Beyond these levels, he expects the Nifty to retest its recent swing high of 25,450.

"The index closed close to its immediate resistance at 24,900, which coincides with the 20-DEMA. A sustained move above this level could extend the recovery towards 25,150 initially, followed by a major hurdle at 25,400. On the downside, immediate support is now placed in the 24,600–24,750 zone, with stronger support near 24,600," Ajit Mishra of Religare Broking said.