 "Go easy on Bank Index; but HDFC Bank could be a good punt")
Special to Firstpost
S&P CNX Nifty (5,320.40): The Nifty broke past the initial resistance level of 5,270 mentioned in the previous week. While this is a sign of strength, the lack of follow-up momentum is a cause of concern. Typically, after a breakout past a significant resistance, the momentum tends to pick up as sellers get wiped out. ( See chart )
This is not to be seen till now. Hence, there is a possibility that the Nifty could consolidate in a range for a while before resuming its next leg of the uptrend. Investors may avoid big ticket exposures in the Nifty.
Instead of the index, there are lots of trading opportunities in individual stocks. Traders and investors may shift focus to stock-specific opportunities rather than the Nifty. Select names from the private banking space, leading companies from the cement sector, and the ones from the sugar space come to mind readily as trading candidates.
If the upward move gathers momentum, it would be reasonable to expect a rally to 5,650.
As observed last week, there is no need to second-guess or forecast if the breakout is reliable. The price action will always give enough clues and time to assess where it is headed. We can always take a trading decision thereafter. The fear of missing out on a move is the primary reason behind taking trades at unfavourable rates.
[caption id=“attachment_414662” align=“alignleft” width=“380”]
Except for HDFC Bank, and maybe Kotak, on weakness, there is little reason to look at the other names. Reuters[/caption]
CNX Bank Index (10,358.95): The index was confined to a trading range in the week to 10 August. The subdued trend in this index played a key role in keeping the Nifty under check. A recovery in the Bank Index is essential to propel the Nifty into a bullish orbit.
The chart patterns in private sector banks are relatively better in comparison to their public sector counterparts. Even within the private sector banking space, there is a divergent trend with HDFC Bank sticking out as an investment candidate while the likes of Axis Bank, Kotak and ICICI have relatively weaker structures.
For the Bank Index, a breakout past 10,800 would be a clincher that the upward move is gathering momentum. There is no technical justification to consider short trades in the index either. Hence, it would be better to avoid big ticket bets in this index.
Given this scenario, investors are advised to stay away from this sector until such time there is a reemergence of buying interest. Except for HDFC Bank, and maybe Kotak, on weakness, there is little reason to look at the other names.
Everest Industries (Rs 186.30): The stock has been in a steady uptrend since 29 December 2011. As highlighted in the chart , the price now is at an area of support and a resumption of the uptrend appears likely.
Long positions may be considered in the stock with a stop-loss at Rs 170, for a target of Rs 220. Price weakness may be used to build exposures in the stock. A breakout past Rs 220 would lend momentum and a subsequent move to Rs 235 may materialise.
Balrampur Chini (Rs 68.25): Stocks from the sugar sector have attracted buying interest after the spike in the retail price of sugar. Balrampur Chini has been in a strong uptrend in recent weeks and the chart patterns suggest that there is more room to the upside.
The stock may be bought with a stop-loss at Rs 61 for an initial target of Rs 78. The uptrend would gain further momentum on a move past Rs 78 and the stock could then target the major resistance at Rs 85.
(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.)