Don't count on the bulls; SBI, Sail are still on downtrend

Special to Firstpost

S&P CNX Nifty (5,660.65): The jury is still not out on whether the index has resumed a fresh leg of the uptrend or if it is still in the midst of a grinding downward move.

While the rally on Thursday pushed the index above the crucial downward sloping trendline (highlighted in the attached chart), Friday’s sharp reversal raises concerns about a fake-breakout.

Unless the index moves above the crucial resistance level of 5,800, it would be safe to work on the premise that the trend is still bearish. A fall below the short-term support at 5,550 would be a strong sign that the index is still in a downtrend.

Even assuming that the index is in the nascent stages of an uptrend, it would not be a bad idea to wait for a convincing breakout above 5,800 before committing fresh funds in the market.

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While this strategy may lead to buying stocks at a relatively higher level, the advantage is that one has the comfort of investing funds after a confirmed trend reversal.

[caption id=“attachment_38872” align=“alignleft” width=“380” caption=“The completion of a “key reversal day” pattern on Friday is a bearish sign. Reuters”]  [/caption]

BSE Sensex (18,858.04): The completion of a “key reversal day” pattern on Friday is a bearish sign. This pattern assumes significance due to its occurrence at the trendline running through the February 11 low of 17,295.62 and June 3 high of 18,672.65.

The trend would remain bearish until the index gets above this trendline at 19,200. Considering that the index, along with quite a few stocks, has seen a sharp run-up, it would not be a bad ploy to take profits.

State Bank of India (Rs 2,478.65): The stock has been in a downtrend after the November 8 high of Rs.3,515. The recent rally from the June 20 low of Rs 2,123 appears to be a brief counter-trend move within an overall downtrend.

The failure on Friday to move past the erstwhile support at Rs 2,490 is a bearish sign. Unless the stock closes above Rs 2,490, it would be vulnerable to a slide to the short-term support at Rs 2,360.

Short positions may be considered with a stop-loss at Rs 2,550, for a target of Rs 2,360. From a medium-term perspective, unless the stock moves above Rs 2,970, there would a strong case for a slide to the major support at Rs 1,920.

Steel Authority (Rs 136.75): The stock has been in a downtrend since its April 5, 2010, high of Rs 258.55. Friday’s fall indicates that the stock has resumed its downtrend and could test the immediate support at Rs 125.

Short positions may be considered in the Rs 139-141 range, with a stop-loss at Rs 144, for a target of Rs 125.

(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 interest in the instruments featured in the column.)