NEW DELHI: Some short covering was witnessed in Thursday’s session as the benchmark Nifty50 ended its six-day losing streak to end in the green. The 50-stock pack ended the session with a gain of 88 points, or 0.87 per cent, though not before paring some gains from the high point of the day.

The market failed to capitalise on the strong opening it enjoyed in trade earlier in the day. However, the short covering took the market higher later on.

Going into Friday’s trade, we still need to approach the market with caution. It is likely that the market will see a good opening again. However, it is just not completely out of the woods. The market will have to crawl above the 10,275-10,300 zone and would need to see that the current wave of short covering gets replaced by fresh buying.

In Friday’s trade, the 10,275 and 10,320 levels will act as immediate resistance for the Nifty50. Supports came in lower at 10,210 and 10,150 levels. The Relative Strength Index, or RSI, on the daily chart stood at 37.0612 and it remains neutral showing no divergence from the price. The daily MACD remained bearish even as it traded above the signal line.

On the candles, a white body with a long lower shadow emerged. It remains significant as it occurred near the important support area of the 200-DMA. This has capacity to potentially mark a bottom. This also needs confirmation on the next trading day.

Pattern analysis showed the Nifty50 has seen a downward breakout from the support area in the 10,276-10,300 range. In an attempt to find a bottom, it has tested the support at the 200-DMA twice in intraday trade.

There is no doubt that the market will have attempted to take support at its 200-DMA and has defended it twice. However, this effort will get confirmed only after the Nifty50 moves past the resistance area in the 10,275-10,300 zone. Until this happens, it will theoretically continue to remain vulnerable to bouts of volatile selling.

We recommend traders to refrain from creating major short positions. Longs, however, should be taken very selectively as well. Cautious outlook is advised until the Markets establish a clear directional bias after confirming a bottom for the immediate short term.

STOCKS TO WATCH: Resilient technical setups were observed on the counters of SBI, GTL Infra, ICICI Bank, Ashok Leyland, CG Power, Axis Bank, TV18 Broadcast, BHEL, Tata Power and Reliance Capital.

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