Trade Setup for February 5: Nifty breaks out of falling wedge pattern, shows strong momentum

Foreign institutional investors (FIIs) have turned net buyers for the first time after 23 consecutive sessions of net selling. On February 4, FIIs were net buyers of ₹809 crore, providing a much-needed boost to the market.

Market Overview:

The US's decision to pause tariffs led to a strong recovery in US futures, which set a positive tone for Asian markets. The Indian equity market mirrored this optimism, experiencing a significant rally.

The Nifty 50 index opened with an upside gap of 150 points, continuing its upward movement throughout the session. The market maintained its positive momentum, closing at a one-month high. Nifty reclaimed the 23,700 mark, while Sensex crossed the 78,500 level, registering a gain of 1,397 points, closing at 78,584. Nifty rose 378 points to settle at 23,739.

This marked the best day for the market since the first week of January, with both Sensex and Nifty turning positive for the year, each gaining nearly 2%. The broad-based rally saw over 40 stocks closing higher, and BSE-listed companies added a market capitalisation of over ₹5 lakh crore.

Key sectors such as energy, banking, and metals led the gains, with the Nifty Midcap 100 index rising by 1.56%, and the Smallcap 100 index gaining 1.09%. Public sector enterprises showed particular strength, with the Nifty PSE index advancing by 2.72%. The PSU Bank and Infrastructure indices also posted solid gains of 2.41% and 2.40%, respectively.

Institutional Activity:

FIIs returned as net buyers on February 4, marking a shift after weeks of consistent selling. In contrast, domestic institutional investors (DIIs) continued their buying spree, purchasing shares worth ₹431 crore.

Nifty 50 Outlook:

According to Rupak De from LKP Securities, the Nifty is showing strong momentum after breaking out from a falling wedge pattern. The index has been sustaining above the critical 21EMA, and the RSI is in a bullish crossover, signaling potential for a rally in the short term. Nifty may aim for the 24,050 level and beyond, with support levels at 23,500 and 23,250.

Nagaraj Shetti of HDFC Securities sees the swing low of 23,222 from Monday as a new higher bottom in the bullish chart pattern, indicating a positive shift. The short-term trend is sharply upward, with the immediate hurdle at 23,600, potentially paving the way for Nifty to move toward the 24,000 levels. Immediate support is placed at 23,550.

Nifty Bank Outlook:

The Nifty Bank index closed at 50,157.95, surging 1.93% and reclaiming the important 50,000 level after a prolonged period of consolidation. The index formed a robust bullish candle on the daily chart, suggesting renewed strength. It is now holding above its 20-day moving average (DMA). On the downside, immediate support is at 48,500, with resistance at 50,820, aligning with the 50% Fibonacci retracement level, according to Om Mehra of SAMCO Securities.

Stocks to Watch:

Zomato: GST authorities have dropped a ₹5.9 crore tax demand.

Hero MotoCorp: Facing two GST penalty demand orders totaling ₹456 crore.

Sun Pharma: Received a GST penalty of ₹160 crore.

RVNL: Awarded a Letter of Acceptance (LoA) for a ₹404 crore project from East Coast Railway.

As the market heads into February 5, the outlook remains positive, with a potential upward move for Nifty towards 24,050 and beyond.