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Trade setup: Mild gains likely; Nifty must stay above 200-DMA

The mildly oversold Dalal Street found support near 50-DMA and staged a strong rally mainly led by short covering on Wednesday. NSE Nifty snapped a six-session losing streak after rising 186.90 points or 1.68 per cent to 11,313.30.

The pullback has once again been fuelled by a strong short covering, and in the process, the headline index has ended a notch above the 200-DMA, which stands at 11,266. It would be crucial for the index to keep its head above this level to capitalise on the gains and avoid being pushed into consolidation again.

A stable start to Thursday’s session is likely, and we may see some incremental gains, however, staying above 200-DMA would be crucial.

Thursday’s session is expected to see 11,355 and 11,400 levels act as resistance, while supports will come in much lower at 11,260 and 11,190.

The Relative Strength Index (RSI) on the daily chart stood at 53.44 and stayed neutral, showing no divergence against the price. The MACD remained bearish and traded below its signal line.

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A large white body emerged on the candles. The emergence of this large candle has occurred near the multiple support points around 11,050. This has lent some credibility to this support area in the near term.

The pattern analysis of the daily charts showed that Nifty has a couple of support points near 11,050, and the pullback from this area has marked this level as a near term support.

On the upside, it would be crucial for the index to keep its head above the 200-DMA.

Despite a sharp pullback, the market still reels under weaker technical setup. It will be prudent not to chase this wild pullback and wait for some consolidation at higher levels.

It would be healthy for the market to sustain this pullback above 200-DMA. We recommend traders not to chase the upmove and protect profits at each higher levels.

(Milan Vaishnav, CMT, MSTA, is a Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)