A short-term slide, but Nifty 6,000 is still on the cards

Special to Firstpost

S&P CNX Nifty (5,574.05): The market sentiment turned distinctly bearish on Friday and the Nifty index cracked below the prior swing low of 5,583. This is a sign of short-term weakness and has led to a sequence of lower highs and lower lows.

Unless the index moves past 5,660, there would be a strong case for a slide to the short-term support in the 5,400-5,450 range. While the short-term outlook is bearish, the medium-term trend is still positive. (See chart **here** )

[caption id=“attachment_526717” align=“alignleft” width=“380”]  The pattern in this index is divergent in relation to the Nifty. Reuters[/caption]

The anticipated rally to the 6,000-mark would resume on the completion of the short-term downward correction. While we expect the short-term downtrend to continue, a breakout past the resistance at 5,660 would suggest that the journey to 6,000 is underway.

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As the medium-term trend is still bullish, investors may use weakness to build exposures in fundamentally sound large-cap stocks from the banking, infrastructure and automobile space.

CNX Bank Index (11,335.50): The pattern in this index is divergent in relation to the Nifty. While the Nifty has closed below the prior swing low of 5,583, this index is traded well above the corresponding level of 11,125.20.

The short-term outlook for this index too is bearish and a test of the short-term support at 10,650-10,700 appears likely.

Until the index moves past 11,750, there would be a strong case for a slide to 10,650. Considering that the medium-term trend is still bullish, investors may use weakness to build long positions in banking stocks.

Only a break below the major swing low at 8,990 would negate the medium-term bullish view. Conservative investors may adopt a SIP kind of approach in frontline banking stocks or resort to systematic investment in banking sector mutual funds.

Grasim Industries (Rs 3,179.55): This stock has been one of the top performers from the cement sector. The recent price action, however, suggests that a short-term downward correction is underway. The sequence of lower highs and lower lows pattern is a sign of weakness and a fall to the short-term support at Rs 3,030-3,040 appears likely.

Shareholders may trim exposures while aggressive traders may consider short positions on a rally, with a stop-loss at Rs 3,320, and a target of Rs 3,030. The downtrend would gain momentum on a fall below Rs 3,030 and the stock could then test the major support at Rs 2,950.

Reliance Capital (Rs 379.55): The stock has been in a short-term downtrend and the recent fall has pushed the price to an area of support. A rally to the immediate resistance at Rs 420 appears likely. (See chart **here** )

Long positions may be considered with a stop-loss at Rs 355 for a target of Rs 420. A move beyond Rs 420 would lend momentum to the uptrend and the stock could then target the major resistance at Rs 445.

(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.)