Nifty, Bank Index and Reliance are on a weak wicket

Special to Firstpost

CNX Nifty (5,871.45): The Nifty ruled firm during the week gone by and also managed to clear the primary resistance at 5,820. While the breakout past 5,820 is a positive sign, the index is still ruling below the more significant resistance at 5,970-5,980. For chart click here.

After a sharp rally, the index took a breather on Friday. While the price action on the last trading day is not all that damaging if viewed in the light of the recent spike, the inability to clear the resistance at 5,980 is irksome.

Those already holding long positions may either take profits at current levels or snug their stop-loss to 5,775. The ones wanting to get long would be better off waiting for a pull back as the recent rally has been too one-sided and devoid of any correction.

A fall below the immediate support at 5,775 would indicate that a deeper correction is underway. This could open up a downside extending upto the 5,610-5,620 range. For the moment, it makes sense to stay at the sidelines and await fresh cues from price.

[caption id=“attachment_733073” align=“alignleft” width=“380”] Representational Image. Reuters[/caption]

Bank Index (12,533.15): The weakness in this index has acted as a drag on the Nifty. Led by State Bank of India, quite a few banking stocks appear stretched to the upside and could trigger at least a short-term downward correction in this index.

Unless the bank index recovers quickly and moves above Thursday’s high of 12,755, it would be safe to assume that the path of least resistance is on the way down. The upside gap formed on 22 April at 12,889 would be the immediate support for the index.

A fall below this support would push the index down to 11,850. Aggressive traders may consider short positions on any minor recovery in the Bank Index with a stop-loss at 13,000 and target of 11,850.

Reliance Industries (Rs 793.70): Along with the Bank Index, this stock too played a key role in pulling down the Nifty on Friday. The price action on Friday suggests that the stock has resumed its downtrend after a minor consolidation. A test of the immediate support at Rs 760 appears likely.

Shareholders of Reliance may consider at least trimming their exposure or buying some protection in the form of out-of-the-money put options. Traders may use any recovery to go short with a stop-loss at Rs 822, for a target of Rs 760, basis spot price. Below Rs 760, the stock could slide to the major support at Rs 720. For chart click here.

Ambuja Cement (Rs 188.25): The stock has been in a downward correction since the 4 October high of Rs 223. The price action in the past few weeks indicates that the correction is complete and the next leg of the uptrend is underway.

Long positions may be considered on price weakness, with a stop-loss at Rs 168 and target of Rs 205. A breakout past Rs 205 would lend momentum to the uptrend and could trigger a rally to the major resistance at Rs 215.

(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.)