Bank Index going great guns; the target is 13,100

Special to Firstpost

S&P CNX Nifty (6,016.15): After several days of consolidation, the Nifty managed to get out of the prior range of 5,838-5,945 and has closed above the psychological barrier of 6,000. While it is positive to note that the index has moved past significant resistance at 5,945, the lack of follow-up buying is a cause of concern.

From a broader perspective, the trend remains bullish and the recent swing low of 5,823 is the new reference point for the bullish camp. There is no reason to suspect the uptrend or its longevity as long as the Nifty trades above this swing low.

The immediate target-cum-resistance for the index is at 6,300. The recent price action and the technical indicators suggest that the index is likely to hit the major target of 6,300 before getting into a meaningful downward correction.

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Stocks from the banking and other interest rate-sensitive sectors are the ones that are likely to propel the index to its target of 6,300. As highlighted in previous weeks, public sector banks appear better placed to deliver higher returns than the private sector ones.

CNX Bank Index (12,787.35): As anticipated last week, the index witnessed a sharp move and had a huge gap-up opening on Tuesday and Wednesday last week. After the rally, the index has been in a minor consolidation in the past couple of trading sessions. The short-term outlook remains bullish and the near term target of 13,100 remains intact.

[caption id=“attachment_578775” align=“alignleft” width=“380”]  The bank index has to fall below the recent swing low of 12,200 to indicate a reversal of the short-term uptrend.[/caption]

The recent chart pattern indicates that there is strong buying interest in the public sector banks. The likes of Allahabad Bank, Union Bank of India, SBI, Punjab National Bank and Indian Bank are the preferred picks from the public sector space. Buyers also seem keen to lap up Rural Electrification Corporation, Power Trading Corporation and Power Finance Corporation.

The bank index has to fall below the recent swing low of 12,200 to indicate a reversal of the short-term uptrend. As long as this level is not breached, there would be a strong case for a rally to 13,100.

Dewan Housing (Rs 214.20): This stock was amongst the top gainers on Friday. The rally was backed by a surge in trading volumes, indicating buying interest. The short-term outlook is bullish and a rally to Rs 265 appears likely.

Investors may buy the stock at the current levels and add more on weakness, with a stop-loss at Rs 180, for an initial target of Rs 265. A breakout past Rs 265 could push the stock to the major resistance at Rs 290.

Escorts (Rs 75.50): The smooth progression of higher highs and higher lows recorded since July 2012 is a sign that buyers are active and are eager to step-up and buy at every correction. The underlying trend is distinctly bullish and the Escorts stock could test the immediate resistance at Rs 85.

[caption id=“attachment_578771” align=“alignleft” width=“600”]  tion. The underlying trend is distinctly bullish and the Escorts stock could test the immediate resistance at Rs 85.[/caption]

Long position may be considered with a stop-loss at Rs 70, for a target of Rs 85. A move beyond Rs 85 would not only lend momentum to the uptrend, but would also propel the stock to the major target at Rs 92.

(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.)