Trade Setup for February 7: Nifty looks to RBI rate cut for breakout to 24,000

The market has been cautious this week, despite a strong rally on Tuesday. Since then, the Nifty has been rangebound, with Thursday's session lacking the typical weekly expiry volatility.

As of now, the market is eyeing the Reserve Bank of India’s monetary policy decision on Friday, which will be the first under the new RBI Governor, Sanjay Malhotra. The market remains divided on whether the central bank will cut rates for the first time in five years, a move that could provide the necessary boost for a push toward the 24,000 mark.

On Thursday, the Nifty’s support levels were found at 23,550, followed by 23,500, with the former also serving as the low for the day. While the index has faced declines in three out of the four trading sessions this week, it is still higher on a weekly basis. However, Thursday's drop ended a three-day streak of making higher highs and higher lows on the charts.

The market is also reacting to the results of key companies, including ITC, Bharti Airtel, Hero MotoCorp, and Britannia. Results from Trent and SBI reported during market hours were disappointing, as both stocks ended at their respective day's lows post-announcement.

Despite Thursday's retreat, broader market activity remained robust, with notable movements in stocks like Swiggy, Abbott, and Castrol India, which saw continued gains.

According to Rupak De of LKP Securities, 23,500 continues to act as an important support level, but a drop below this could signal a shift in sentiment. Resistance is expected at 23,800 and 24,050. Nagaraj Shetti from HDFC Securities believes the near-term uptrend remains intact, with the current weakness finding support between 23,500 - 23,450 levels. A decisive bounce above 23,800 could trigger further upside.

Shrikant Chouhan of Kotak Securities adds that a bounce back to the 23,750 - 23,800 levels is possible if the Nifty stays above the 23,500 mark. Conversely, a dip below 23,500 could weaken the uptrend and prompt traders to exit their long positions.

Despite SBI's disappointing results, the Nifty Bank ended the day in the green, outperforming the Nifty. The index has been on a positive streak, closing higher for three consecutive days and making higher highs over the past four sessions. The Nifty Bank will take center stage on Friday with the RBI policy announcement.

According to Om Mehra of SAMCO Securities, the Nifty Bank is holding above its 38.2% Fibonacci retracement level at 50,100, with resistance at the 200-DMA level of 51,000. A breakout above this could accelerate bullish momentum. Support is at 49,700.

Hrishikesh Yedve from Asit C Mehta Investment Intermediates suggests that the Nifty Bank is likely to consolidate within the 50,000 - 50,600 range in the short term. A breakout in either direction could define the next move for the index.