Trade Setup for October 8: Nifty bulls show signs of exhaustion at higher levels ahead of earnings

Are the bulls showing signs of exhaustion? Was it just expiry-related volatility? or just caution ahead of results?

All of these questions seem justified after looking at Tuesday's price action on the index. A pitch that kept both the batsmen and bowlers interested, if one takes some liberty to use cricketing analogy to describe Tuesday's session. Both bulls and the bears were in play through the session.

The index opened higher, saw a minor dip, surged to the highs, gave up those gains, recovered those losses, made a new intraday high, give up those gains again, made a new intraday low and somehow managed to defend some gains by the close. Yes, too much to digest if were not looking at your screens through the session. But then, that's how a proper expiry session plays out.

Bottomline? The Nifty made a higher high and a higher low on the charts for the fourth straight session. The index also managed to defend the 25,100 mark on the downside, taking support between the 25,050 - 25,100 zone.

There is also no denying the fact that there is some caution at higher levels, considering the moves seen over the last four trading sessions. At the day's high of 25,220, the Nifty was up nearly 650 points from the September 30 low of 24,587. It would therefore come as no surprise that the bulls may have taken some profits off the table and lighten their positions before the earnings season begins on Thursday, with TCS and Tata Elxsi.

For the Nifty, the 61.8% retracement continues to remain at important level at 25,119. The index did breakout above it, but could not sustain the move. The next level on the upside, is definitely Monday's high of 25,220. The 25,050 - 25,100 will act as a strong support for the index.

The Nifty Bank had a similarly topsy turvy session. The index crossed the July 31 high of 56,406, made a new swing high of 56,502, but fell nearly 300 points from those levels. Yet, the index gained for the sixth day running. HDFC Bank and ICICI Bank continued to contribute, ensuring that the index still remains an outperformer despite the fall from the highs.

"Nifty Bank continues to hold above all major moving averages, reaffirming short-term strength. The Bollinger upper band, placed near 56,250, has been marginally tested, suggesting that a temporary pause could occur if follow-through buying does not emerge," Om Mehra of SAMCO Securities said. "The support is placed near 55,800, followed by 55,500, while resistance lies at 56,500–56,700 as per Fibonacci projections. Although the trend remains bullish, the formation of an inverted hammer coupled with a stretched short-term rally calls for slight caution at higher levels," he added.

It was another day of declines on the NSE being higher than the advances.

While there are no major triggers for Wednesday's session, the street will look to seeing whether the market participants continue to book profits at higher levels and exercise caution before the earnings season begins on Thursday.

"The short term uptrend of Nifty remains intact, but the market has started to show signs of profit booking from the higher levels. A slide below 25000-24900 levels could possibly open short term downward correction in the market. However, a sustainable move above the hurdle of 25200 could pull the Nifty towards 25450 levels in the near term," Nagaraj Shetti of HDFC Securities said.

Shrikant Chouhan of Kotak Securities is of the view that the 20-Day Moving Average and the 25,000 - 24,950 zone will continue to act as a strong support for the Nifty and the trend remains bullish as long as the index remains above these levels. He advises day traders to buy intraday dips and sell intraday rallies. 25,200 - 25,275 on the upside would act as an upside barrier for the bulls.