Has the bear market rally petered out? Jury is out

Special to Firstpost

S&P CNX Nifty (5,059.45): The healthy recovery witnessed in the early part of last week was largely undone by Friday’s sharp slide in the Nifty. While the recent rally from the 26 August low of 4,720 has been quite impressive, the failure to get past the erstwhile support at the 5,177-5,200 range is a cause for concern. (View chart)

Has the index bottomed out or will it fall below the recent low of 4,720? This is the question most people are grappling with. Unless the index moves past 5,450, there would be a strong case for a retest or even a poke below the recent low of 4,720.

The immediate support is at 4,940, a fall below which would indicate that the journey towards 4,720 is underway. If 4,940 holds, the recent recovery process could stretch up to 5,230.

Ahead of the crucial Reserve Bank policy review on 16 September, it would be advisable to stay away from the market. Compulsive traders may take small-sized bets via the options route to minimise risk.

BSE Sensex (16,866.97): The Sensex remains in a downtrend and the recent recovery off the 26 August low of 15,765 appears to be a corrective rally within the context of an overall bearish trend.

[caption id=“attachment_80679” align=“alignleft” width=“380” caption=“The Sensex remains in a downtrend. Arko Datta/Reuters”] [/caption]

The price action in the past few days indicates that the recovery process is not complete as yet. Those wanting to take up short positions may wait until there is further clarity.

The resistance band at 17,350-17,700 would be an area to hunt for positional shorts. Else, a fall below 16,400 would be a strong signal to consider short positions for a trip down to 15,500 or lower.

Gujarat State Petronet (Rs 108.90): As highlighted in the chart, the trendline running through the 10 February low of Rs 88 and 13 July high of Rs 101.80 has acted as a line of balance for the stock. (View chart)

The sharp rally last Thursday pushed the stock above this trendline, which is a sign of strength. Long positions may be considered on a retest of this trendline in the Rs 105-107 range, with a stop-loss at Rs 102 and target of Rs 120.

Jubilant FoodWorks (Rs 914.10): The stock has been one of the top outperformers in the past few months. The price pattern in the past few weeks, however, indicates that a short-term downtrend is underway.

The negative divergence between the price action and the 14-day Relative Strength Index (RSI) is a sign of waning momentum. The stock has to get past the resistance at Rs 975 to invalidate the short-term bearish view.

Investors may reduce exposures in the stock and consider fresh investments once the stock falls to the immediate support level in the Rs 750-800 range.

(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.)