Nifty, Bank Index are in bear mode; bank stocks divergent

Special to Firstpost

S&P CNX Nifty (5,205.10): As anticipated, the index ruled weak and almost tested the support zone of 5,130-5,160 mentioned in the previous week. The price action during the week gone by does not warrant a relook at the bearish stance. As highlighted in the attached chart above, the Nifty has to overhaul the initial resistance at the blue down-sloping upper parallel line to indicate some semblance of strength.

The short-term trend remains bearish as long as the index trades below the major resistance at the 5,300-level. Investors may remain on the sidelines until this level is cleared. On the way down, the major support is at the 5,100-5,120 range. As long as 5,300 is not taken out, it would be safe to work on the premise that the Nifty may drift to the support at 5,100-5,120.

Select stocks, however, look compelling from a trading perspective. Short-term traders may concentrate on individual names rather than the Nifty. For a trade from the long side, names such as Grasim Industries, Dabur India, Godrej Industries, Colgate Palmolive and Marico come to mind readily.

CNX Bank Index (10,481.60): The price pattern in the past few days have confirmed the bearish view and the index is on course to hit the target zone 10,100-10,200 mentioned last week. The minor sequence of lower tops and lower bottoms formed during the week is a sign that the sellers are dominant.

A look at the individual banking heavyweights portrays a mixed picture. While a few public sector banking stocks such as Bank of India and Bank of Baroda are trading at critical support levels, the private sector counterparts such as HDFC Bank and ICICI Bank are traded pretty close to their significant resistance levels.

Any further deterioration in market sentiment could trigger a crack in the Bank Index as well as the Nifty. Investors may take some profits and pare exposure in the banking sector and await signs of fresh buying interest before committing funds towards the sector.

Dabur India (Rs 118.35): The stock has been one of the top outperformers since June. The short-term outlook is bullish and a rally to the short-term resistance at Rs 135 appears likely. Investors may buy the stock at the current levels as well as on weakness, with a stop-loss at Rs 110.

The uptrend would gain momentum on a move past the initial target of Rs 135 and the stock could then head towards the next resistance at Rs 142.

Godrej Industries (Rs 245.75): The stock on Friday took support and staged a recovery at the crucial support level of Rs 238-240. This is a sign that the buyers are active in the stock. Long positions may be considered with a stop-loss at Rs 233 for a target of Rs 270.

A breakout past Rs 270 would be a sign of strength and could trigger a rally to the next resistance at Rs 290.

(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.)