Trade setup for Sept 23: Bumpy ride ahead for Nifty50? Key market cues before Thursday's session

Indian equity benchmarks ended a volatile session on Wednesday marginally lower, as losses in financial shares outweighed gains in IT, auto and metal shares. That was as investors awaited the outcome of the US central bank's policy meeting for clues on tapering of stimulus and future interest rates in the world's largest economy.

The 50-scrip benchmark formed a small negative candle on the daily chart with minor upper and lower shadows, according to Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

"Technically, this pattern signals a breather after a fine bounce from the lows. Such formations more often act as an uptrend continuation sign," he said.

: All eyes on Fed policy meet for cues this week

"Wednesday's price activity is a clear indication that market participants are waiting for the outcome of the Fed policy... Since there is a penultimate weekly expiry in our market as well (due on Thursday), we may see higher volatility," said Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel Broking.

"We continue to remain cautious on the market and advise against creating aggressive bets for a while. In order to regain confidence, another couple of days’ strength is quite crucial," he said.

At 8:27 am on Thursday, Nifty futures trading on Singapore Exchange -- an  early indicator of India's Nifty50 benchmark index -- were up 100.5 points or 0.6 percent at 17,653.5, signalling a strong opening ahead on Dalal Street.

Equities in other Asian markets rose on Thursday after the Federal Reserve took a hawkish tilt overnight. The US central bank said it would likely begin reducing its monthly bond purchases as soon as November, and signalled interest rate increases may follow more quickly than expected. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6 percent.

However, investors remained on edge about Evergrande's future, with a major test to come later on Thursday when $83.5 million in dollar-bond interest payments are due. S&P 500 E-Mini futures were up 0.2 percent in early Asian trade, suggesting a positive start in the US on Thursday.

On Thursday, level of 17,610-17,650 would be seen as an immediate hurdle, whereas a a break below 17,500 would result in retesting of the 17,400-17,350 band, according to Chavan.

He expects key support at 17,350-17,250 from a short-term perspective.

Nifty50: "Initially, the market would follow the trading range between 17,660 and 17,300 on Thursday. Above 17,660, the index would enter a breakout formation which would lift the market to 17,800-17,900 levels," said Shrikant Chouhan, Head-Equity Research (Retail) at Kotak Securities.

Below 17,300, the index would gradually fall to 17,100-16,900 levels, he said.

Bank Nifty: Strong resistance for the banking index is placed between 37,400 and 37,500 levels. A surge to 38,100 is not ruled out if Bank Nifty crosses the 37,500 mark, he said.

ALSO READ: Can you bank on Bank Nifty now?

Foreign institutional investors (FIIs) withdrew a net Rs 1,943.3 crore from the Indian capital market on Wednesday. However, domestic institutional investors saved the day, making net purchases of Rs 1,850 crore, exchange data showed.

ALSO READ: FIIs remain bullish on India, net purchase Rs 13,083-crore Indian shares so far in Sept

There is a high degree of call open interest at the strike prices of 17,600 and 17,800. On the other hand, the maximum put open interest is concentrated at the 17,500 mark, followed by 17,200, NSE data shows. This suggests that immediate resistance can be expected at 17,600, followed by 17,800, and support comes in at 17,500.

Here are five stocks that saw an increase in open interest as well as price, suggesting a build-up of long positions:

ITC, Tech Mahindra, HCL Tech, Bajaj Finserv, Bajaj Finance, NTPC, IndiGo, ICICI Lombard GI, L&T Technology Services, L&T Infotech, Mindtree, Mphasis, Indian Hotels, PVR, Inox Leisure and Zee Entertainment were among the 40 stocks in the BSE 500 index — the broadest gauge on the stock exchange — that clocked 52-week highs. JSW Energy, Persistent, Pidilite, Sunteck, DLF, Godrej Properties, UBL, Oil India, Allcargo, Brigade, Coforge, GMR Infra, Birlasoft and Can Fin Homes also hit the milestone.

No stock in the BSE 500 universe hit a 52-week low. Apart from that, Suvidhaa Infoserve and Premier Capital Services were among the few stocks that hit the trough.

NSE's India VIX index -- which gauges the expectation of volatility in the near term -- settled marginally lower at 16.5 on Wednesday, having risen as much as 2.1 percent to 16.9 during the session.