Nifty, Bank Index are looking down; upmoves may be limited

Special to Firstpost

**CNX Nifty (5,553.25):**The Nifty index behaved in line with expectations. Not only did the anticipated pullback materialise, it also met with resistance right at the 5,750-5,775 range mentioned last week. After a rally in the first two trading sessions of the week, the index ruled distinctly weak in the remaining three trading sessions. See chart here

The fall has pushed the index to an area of support in the 5,440-5,520 range, which is the huge upside gap recorded in September 2012. The index is at oversold levels and near an area of support which supports the case for a counter-trend rally.

[caption id=“attachment_688657” align=“alignleft” width=“380”] From a broader perspective, the trend still remains negative and the Nifty has to break out above 5,760. Reuters[/caption]

From a broader perspective, the trend still remains negative and the Nifty has to break out above 5,760 to negate the bearish view. Any rally would, therefore, be an opportunity to pare exposures in frontline stocks and also initiate short positions with a stop-loss above 5,760.

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The crack this week below the prior swing low at 5,548 strengthens the case for a slide to the major support at 5,300-5,350. Unless the Nifty moves above 5,975, a slide to the major support zone would be the favoured view.

Bank Index (11,098.95): Similar to the Nifty, this index too lost ground in the last three trading sessions of the week. The short-term outlook for the index is positive and a rally to the immediate resistance at 11,380-11,450 appears likely.

A breakout past this resistance zone could trigger a rally to 11,700-11,800. While there is a case for a short-term bounce, this does not invalidate the medium-term bearish view for the index. Until the index moves above the 11 March swing high of 12,241, the path of least resistance would be on the way down.

Any rally may, therefore, be used to reduce exposure in banking sector stocks. Unless the index moves past 12,241, there would be a case for a slide to 10,000-10,200 range.

ONGC (Rs 314.50): This stock has been in a downward corrective phase in the past few weeks. This downward move has been arrested at the key support at Rs 290-300 range and the price action in the past few days indicates that the stock could seek higher levels from a short-term perspective. See chart here

Long positions may be considered with a stop-loss at Rs 285, for a target of Rs 335. The stock could rally to the major resistance at Rs 355 once it manages to move past the initial target of Rs 335.

TCS (Rs 1,500): The stock has been in a major uptrend over the past several weeks. The price action in the last few trading sessions indicates that the stock could seek lower levels from a short-term perspective. Existing shareholders may pare exposures by taking profits.

Aggressive traders may consider short positions on any recovery, with a stop-loss at Rs 1,610, for a target of Rs 1,390. A fall below this support at Rs 1,390 would be a major sign of weakness and the stock could seek lower levels of Rs 1,325.

(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.)