Special to Firstpost
CNX Nifty (5,719.70): The Nifty moved in line with expectations and also hit the target of 5,650-5,700 that was mentioned over the past several weeks. The index cracked below the support level of 5,820, which is a sign of weakness. As highlighted in the chart above, the index is now at an area of support and a short-term bounce is likely.
A rally to the immediate resistance at 5,840-5,860 appears likely. While there is a possibility of a brief upward move, it does not negate the medium-term bearish view. The downtrend is likely to resume on the completion of the anticipated rally.
Aggressive traders may consider long positions on weakness with a stop-loss at 5,450. Taking long positions via the options route is advisable as this would keep the risk under check.
A look at the individual stocks indicates that automobile and banking sector stocks could propel the index to higher levels from a short-term perspective. The banking and oil and gas sectors are likely to play a key role in dragging the Nifty down once the upward move is complete.
Bank Index (11,540.05): As anticipated in prior weeks, this index too cracked sharply and tested the earlier mentioned support zone of 11,700-11,800. While the bank index closed below the support zone, it is now perched right at a crucial upsloping trendline running through the 20 December 2011 low of 7,767 and 18 May low of 8,996.
There is a strong case for a short-term bounce to the resistance level at 11,950-12,100 range. Such a bounce would, however, be an opportunity to trim exposures in banking heavyweights as the medium term trend is bearish. Unless the index moves past 12,700, there would be a strong case for an eventual slide to 10,400-10,600 range.
Bajaj Auto (Rs 2,023.45): After a brief downward correction, the recent price action suggests that a short-term uptrend is underway. The sharp rally on Friday, backed by increased trading volume, is a sign that the stock has resumed its uptrend.
Long positions may be considered at the current levels and on weakness, with a stop-loss at Rs 1,860, for a target of Rs 2,155. The uptrend would gather momentum on a breakout past Rs 2,165 and would trigger a rally to the major resistance at Rs 2,210.
Hindustan Petroleum (Rs 302.45): The stock has been in a sharp downward correction in the past few weeks. This correction has pushed the price to an area of support. The sharp recovery on Friday suggests that the correction is over and the stock could seek higher levels from the current levels.
Any price weakness may be used to buy the stock with a stop-loss at Rs 274 and a target of Rs 345. A breakout past the immediate resistance-cum-target level of Rs 345 would be a sign of strength and could help the stock coast along to the major resistance at Rs 358.
(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.)