Big Nifty move likely after downside correction

Special to Firstpost

S&P CNX Nifty (5,684.25): The Nifty did a whole lot of nothing during the week gone by. As highlighted in the attached chart ( **see chart** ), the index has been consolidating in a tight trading range and this typically is a precursor to a big move.

As observed in the previous weeks, the short-term trend remains bullish and a rally to 6,000 remains the preferred view. It, however, remains to be seen if this move to 6,000 happens straightaway or after a downside correction.

The stage is now set for the big move and a fall below 5,590 would indicate that a slide to 5,450 is underway. On the other hand, if the index were to move past 5,730, it would confirm the start of a move to the 6,000-mark.

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The price action next week would set the tone for the next big move in the Nifty. Rather than second-guessing, it always makes sense to wait for the price to give a clue about the direction and it is far easier then to take appropriate trading action.

From a longer-term perspective, the sequence of higher highs and higher lows is in place. Until this sequence is disturbed, there is no reason to suspect the potential for a rally to 6,000 and beyond. The bullish sequence would get disturbed only if the index falls below the recent swing low of 5,215.

CNX Bank Index (11,491.20): The price action in this index was not too different from the Nifty. The index was confined to a trading range and there is a possibility of fall to the immediate support at the 10,700-10,800 range.

As observed last week, the index is still hovering above the crucial support at 11,300. A fall below this level would a sign that a slide to 10,800 is underway. Select stocks from the sector, including Axis Bank, IDFC and HDFC Bank, look promising from a short-term investment perspective. The public sector banks such as Punjab National Bank, Bank of Baroda and State Bank could see some downside pressure.

From a long-term perspective, the price patterns indicate that the bank index is just biding its time before resuming its next leg of the uptrend. Any price weakness may be used to buy fundamentally sound banking sector stocks.

Jyothy Laboratories (Rs 172.65): This stock has been in sideways consolidation after having touched a high Rs 183.65 on 10 September. The price action in the past few days indicates that the stock has resumed its medium-term uptrend.

Investors may use price weakness to buy the stock, with a stop-loss at Rs 159 for a target of Rs 190. A breakout past Rs 190 would lend momentum to the uptrend and a subsequent move to Rs 202 may materialise.

CESC Ltd (Rs 339.10): The sequence of higher highs and higher lows off the 24 April low of Rs 243 is a sign that the stock is in an uptrend. The chart pattern in the last couple of trading sessions indicates that the stock has embarked on the next leg of the rally to Rs 370. ( **See chart** )

Long positions may be considered with a stop-loss at Rs 314, for a target of Rs 370. The uptrend would gain momentum on a move past Rs 370 and the stock could then target the major resistance at Rs 385.

(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.)