Bulls in uncertain phase: Time to wait and watch Nifty

Special to Firstpost

S&P CNX Nifty (5,049.95): The price action in the trading week ended Friday, 21 October, was marked by a high degree of volatility. This is indicative of uncertainty amongst market participants, ahead of crucial domestic and global events.

After a strong uptrend witnessed the week before, the absence of follow-up buying during the week is a cause of concern. This, coupled with a pick-up in volatility, indicates lack of conviction in the bullish camp.

The index has to break out past the upper end of the current trading range at Nifty 5,170 to lend momentum to the uptrend. Else, the recent range-bound action could persist. A failure to move past 5,170, followed by a close below 4,880, would have bearish consequences.

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[caption id=“attachment_114416” align=“alignleft” width=“380” caption=“After a strong uptrend witnessed the week before, the absence of follow-up buying during the week is a cause of concern. This, coupled with a pick-up in volatility, indicates lack of conviction in the bullish camp.AFP”]  [/caption]

With a truncated trading week ahead, it would be advisable to stay on the sidelines and refrain from taking fresh trading positions.

CNX Bank Index (9,695.35): With the credit policy round the corner, this index assumes greater significance from a trading perspective. The index remains in a medium-term downtrend and the recent pull-back, off the 5 October lows, appears a counter-trend rally within the overall bearish context. View chart.

A breakout past the 9 September high of 9,972 would be an early sign of a reversal of the medium-term downtrend. Else, a drift to the minor support at 8,800 appears likely. A fall below 8,800 would lend momentum to the downtrend.

The price action next week will not only set the tone for the next major move but also throw up compelling trading opportunities as well.

Larsen & Toubro (Rs 1,336): The stock is in a major downtrend and the price action on Friday confirms the weak undertone. A fall to the immediate support at Rs 1,100 appears likely. View chart.

Investors may reduce exposures in the stock. Those willing to trade may consider shorting in the futures market, with a stop-loss at Rs 1,440, for a target of Rs 1,100.

Jubilant FoodWorks (Rs 835.75): The short-term outlook for the stock is bearish and a test of the minor support at Rs 730 appears likely. Investors may pare exposures while aggressive traders may contemplate short-positions with a stop loss at Rs 930 in the futures market.

A fall below the minor support at Rs 730 could trigger a fall to the major support at Rs 630. Unless the stock moves above Rs 1,025, a test of the major support at Rs 630 would be the preferred view.

(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.)