Trade Setup for Dec 7: 20-DEMA levels key for Nifty, Nifty Bank as market awaits events outcome

Indian markets ended lower for the third straight day on Tuesday ahead of the outcome of India's Monetary Policy Committee, which will announce its policy decision today at 10 AM.

Most sectoral indices ended with losses in Tuesday's session, barring the PSU Bank index, which hit a 52-week high, ending nearly 2 percent higher. Morgan Stanley expects this outperformance to continue in their most recent note.

In an interaction with CNBC-TV18 on Tuesday, Jai Bala of cashthechaos.com said that there is a need of more evidence to conclude that the market has already topped. Advising investors to be cautious, Bala said that a significant downtrend might commence if indices break key support levels.

He highlighted 18,450 as a near-term support and 18,130 as the level for a complete trend reversal.

According to Ruchit Jain of 5paisa.com, both Nifty and the Nifty Bank index, despite the consolidation in the last few days, are trading above their respective 20-day Exponential Moving Average (EMA) of 18,430 and 42,600 respectively.

Therefore, Jain cites these levels to be crucial to both indices and also pay attention to how the market reaction is to the events of the next two days.

"The momentum readings on both Nifty as well as the Bank Nifty daily chart are in overbought zone and thus in case the indices breach the above mentioned supports, then it could enter a price-wise corrective phase in the near term," he said.

In an interaction with CNBC-TV18, Rahul Singh of Tata Mutual Fund said that the answer to the current uncertain times may be clearer within the first three to six months of 2023. " I won't be surprised if we stay in this kind of a market, bit of range bound market with volatility, which is actually not a bad outcome given that the global macros remain still very uncertain," he said.

Markets in the Asia-Pacific are trading mixed this morning after an overnight sell-off on Wall Street. The Nikkei 225 is trading 0.4 percent lower, while the Topix recovered from the day's low to trade with gains of 0.2 percent. Indices in South Korea - the Kospi and the Kosdaq are trading 0.1 percent and 0.3 percent lower respectively.

Wall Street extended losses for the second straight day as fears of a recession were abound. The Dow Jones fell another 350 points while the S&P 500 declined 1.4 percent. The tech-heavy Nasdaq declined 2 percent as well.

Nagaraj Shetti of HDFC Securities believes that the Nifty 50 remains in consolidation mode with gradual weakness. He expects the index to bounce from its support level of 18,550 in the next one to two sessions.

5Paisa's Jain says that the uptrend on both Nifty and Nifty Bank remains intact as long as the indices remain above their support levels. Despite both indices being in the overbought zone on the charts, a positive reaction to events may take indices higher.

In such a scenario, Jain sees the immediate resistance for the Nifty 50 at 18,800, followed by 19,000.

For the weekly options expiry on December 8, the 18,900 call strike of the Nifty added 3.6 lakh shares in Open Interest while the 18,800 call added 14.5 lakh shares.

On the downside, the 18,600 put strike added 28.8 lakh shares while the 18,500 put saw addition of 8.4 lakh shares in Open Interest.

Punjab National Bank has entered the F&O Ban along with GNFC and Indiabulls Housing Finance, that continue to remain in the ban. The only type of trading allowed when the stock is in the F&O ban is to exit or square off existing positions. No new positions can be opened when the stock is in the F&O Ban. Delta Corp will exit the F&O ban today.

Here are five stocks that saw an increase in open interest as well as price: