Trade Setup for March 6: Is it Nifty's recovery or a dead cat bounce?

The Nifty ended its 10-day losing streak with a strong rally on Wednesday, sparked by optimism over potential tariff relief and positive global cues.

Critical support at the 21,950-22,000 range holds significance, with a failure to maintain this level indicating a broader market decline.

A bounce from oversold levels was expected, but the real test lies in whether the rally can sustain beyond 22,500.

The Nifty’s next major resistance is at 22,500, with further upside possible if the bulls push through this level. A failure to cross it could lead to a return to the current range.

Market Dynamics:

Wednesday’s trading session brought some much-needed relief to the Nifty bulls after a prolonged losing streak. The index managed to bounce back sharply, ending the session with a 10-day losing streak behind it. The key factor driving the rally was a mix of positive news from the US and China, including tariff relief discussions and China’s stimulus plans, which sent global equities higher.

However, while the bounce was a welcome change for investors, it came from deeply oversold levels. Traders need to keep in mind that such a rally could be short-lived, with market sentiment still fragile. The 21,950-22,000 support zone is crucial for the Nifty’s immediate outlook. A breakdown below this level could signal a deeper correction, especially as it coincides with a critical support level from June 2024, where the Nifty had previously reversed its trend.

Outlook for March 6:

The next 150 points will be crucial in determining whether the current rally is a sustainable recovery or merely a short-term bounce. A break above 22,500 will bolster confidence among the bulls, targeting 22,700-22,800 as the next resistance zones. On the other hand, if the Nifty fails to cross 22,500, the index may return to its current range, testing lower levels again.

The Nifty Bank showed relative underperformance compared to the broader market on Wednesday, with key banking stocks like HDFC Bank and IndusInd Bank weighing on the index. The Nifty Bank is currently hovering near 48,500, and if it sustains above this level, it could test the 49,000 resistance zone.

Key Levels to Watch:

Resistance: 22,450-22,500 range

Support: 22,100-22,000 zone

Stock Focus:

IIFL Finance and KPIT Tech saw fresh long positions, indicating bullish sentiment.

BSE, Balkrishna Industries, and IndusInd Bank witnessed fresh short positions, which could indicate caution in these stocks.

Stocks to Watch:

Zydus Life: Approval from USFDA for Dasatinib Tablets.

Wipro: Launch of Telco AI360 for telecom operations.

Galaxy Surfactants: Strategic collaboration for EPC services.

TCS: Launch of a digital platform with Vantage Towers.

With the Nifty bulls aiming to hold key support levels, traders should monitor these critical resistance and support zones closely, especially ahead of Thursday’s weekly options expiry.