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Bank Index holds key to Nifty as IT, pharma weaken

Special to Firstpost

CNX Nifty (5,565.65): Contrary to expectations of a recovery, the stock market sentiment was bearish during the week gone by with the index losing close to 150 points on Wednesday. While there was some respite on Friday, the cut in individual stocks was quite damaging during the week.

Technically, the Nifty still has the potential to stage a counter-trend rally that could extend up to 5,800-5,850. The banking sector displayed some resolve in the past couple of trading sessions and holds the key to the near term trend in the Nifty.

Early signs of a crack are visible in the pharma and IT sectors. Given this backdrop, if the Bank Index fails to lend support, the damage to the Nifty could be quite sharp in the forthcoming weeks.

A fall below the recent swing low of 5,477 would be a major sign of weakness and could push the Nifty into a major downtrend. The Nifty has to move past 5,850 to suggest some respite from the recent fall. Unless 5,850 is taken out, the path of least resistance will be on the way down for the Nifty.

Bank Index (9,816.40): The near term prospects of the Nifty hinges on how the Bank Index behaves. The PSU giant - State Bank of India - is to announce its June quarter earnings in the week ahead. This would play a big role in influencing sentiment towards the banking sector as well as the Nifty.

Technically, the index is ruling below the key resistance at 10,250. A breakout past this level would lend momentum to the pull back rally and the index could reach the 11,000 mark thereafter.

A fall below 9,600 would be a sign that the index is headed towards the major support at 8,900-8,950. Unless the index clears 10,250, there would be a strong case for a slide to 8,950.

Biocon (Rs 339.85): The stock has been in an uptrend in recent weeks. The sharp rally last Thursday is a sign that the short-term uptrend is gaining momentum. The stock appears headed to the short-term resistance in the Rs 385-390 range.

Investors may buy the stock with a stop-loss at Rs 305 and target of Rs 390. A breakout past Rs 390 would be a major sign of strength and could help the stock head for the major resistance at Rs 425.

Kotak Mahindra Bank (Rs 652.35): After a sharp fall, the stock has been consolidating in recent days at the crucial support of Rs 620-640. The chart pattern suggests buying interest at lower levels and the rally on Friday is a sign that the stock could seek higher levels.

 Long positions may be considered with a stop-loss at Rs 620 and initial target of Rs 682. The uptrend would gain momentum on breakout past Rs 682 and the stock could then test the major resistance at Rs 705.

Long positions may be considered with a stop-loss at Rs 620 and initial target of Rs 682. The uptrend would gain momentum on breakout past Rs 682 and the stock could then test the major resistance at Rs 705.

The short-term outlook is positive and Kotak Mahindra could rally to Rs 682. Long positions may be considered with a stop-loss at Rs 620 and initial target of Rs 682. The uptrend would gain momentum on breakout past Rs 682 and the stock could then test the major resistance at Rs 705.

(The views and recommendations featured in this column are based on a technical analysis of historical price action. There is a risk of loss in trading. The author may have positions and trading interest in the instruments featured in the column.)