Special to Firstpost
CNX Nifty (5,667.65): As anticipated, the Nifty turned rallied to the target zone of 5,860-5,900 and turned weak thereafter. The index hit a high of 5,854 on Wednesday, just 6-points shy of the lower end of the target of 5,860.
As highlighted in the attached chart, the index has formed a bullish Key Reversal Day pattern on Friday. The occurrence of this pattern at the key support level is a sign that the index could probably seek higher levels from a short-term perspective.
While the Nifty has seen quick and sharp fall off the May 20 high of 6,229.45, it has not vitiated the overall bullish sequence of higher highs and higher lows. Only a fall below 5,470 would indicate that the medium-term bullish trend is under threat. On the higher side, a breakout past 5,870 would strengthen the case for resumption of uptrend.
Investors may use any weakness to build long positions in the Nifty as well as high quality large cap stocks. Given the recent perk-up in volatility, it would be advisable to adopt a SIP-kind of approach to investment.
Bank Index (11,340.15): While the Nifty hit its target zone, the Bank index failed to do so. The index fell short of the projected target zone of 12,250-12,300 and reversed direction at 11,993. The fall below the prior swing low of 11,650 is a sign of weakness and has confirmed the bearish sequence of lower tops and bottoms.
The index now has to scale above the recent swing high of 12,000 to indicate the resumption of medium-term uptrend. On the contrary, a fall below 10,800 would be a major sign of weakness and could also drag the Nifty along with it into the bear market territory.
Escorts (Rs.68.20): After a sharp rise off the March 28 low of Rs.48.40, the stock has been in a sharp uptrend in the past few months. The rally was halted at the key resistance at Rs.74-75 range and the stock fallen sharply in the past few trading sessions. This is a sign of weakness and suggests that the sellers are active at higher levels.
The short-term outlook is bearish and a the stock could slide to the support at Rs.59. Shareholders may reduce exposure in Escorts and consider re-entry at lower levels, if need be. The bearish view would be under threat if the stock moves above Rs.75.
As long as the resistance at Rs.75 is intact, the stock could eventually test the major support at Rs.52-54 range..
Maruti Suzuki (Rs.1,553): The stock has been in a downtrend in the past few weeks and the fall was arrested at the key support at Rs 1,430-1,450 range. The subsequent recovery over the past few trading sessions indicates that a short-term uptrend is underway.
Long positions may be considered with a stop loss at Rs.1,410 for a target of Rs.1,710. A breakout past Rs.1,780 would lend momentum to the uptrend and the stock could then extend its run up to Rs.1830.
(The views and recommendations featured in this column are based on the 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.)