Nifty, Bank Index are now staring down, so are PNB, Hindalco

Special to Firstpost

CNX Nifty (5,983.55): Market sentiment was spooked by disappointing GDP data announced on Friday. As a result, the index dropped by over 100 points to close well below the 6,000-mark. The index was unable to clear the crucial resistance of 6,110 that was mentioned last week.

The Nifty’s inability to get past this level and the subsequent crack on Friday is a sign that the index is headed into a deeper correction. The short-term outlook is bearish and the index now has to move past 6,230 to invalidate this view.

As long as the Nifty trades below 6,230, the path of least resistance would be on the way down and a drop to 5,650-5,700 would be the favoured view. Index heavyweights such as Larsen & Toubro and State Bank of India have fallen below their support levels, strengthening the case for a bearish outlook for the Nifty.

A fall below the recent swing low of 5,930 would strengthen the case for further slide in the Nifty. Investors may avoid big ticket exposures in the Nifty until the anticipated correction transpires. Else, a breakout past 6,230 may be used to initiate fresh exposures in the frontline stocks.

Bank Index (12,475.65): The crack in this index was instrumental in pulling the Nifty to lower levels on Friday. The index failed to get past the key resistance of 13,100 mentioned in the week before. The failure at key resistance and the subsequent fall on Friday is a sign that the index is headed to lower levels.

The index is tracing out a sequence of lower highs and lower lows, which is a sign of weakness. A fall below the swing low at 12,180 would strengthen the case for a short-term slide in the Bank Index. The short-term trend would remain bearish until the index gets above 13,450.

As long as the index trades below 13,450, the index would be vulnerable to a slide to the next significant support at 11,250-11,400.

Punjab National Bank (Rs 761): The recent price action suggests that the stock has resumed its medium-term downtrend. The brief counter-trend upward move appears complete and a fall to the support at Rs.675 seems likely.

Shareholders in Punjab National Bank may reduce their holdings. Those interested in taking some risk may consider short positions with a stop-loss at Rs840 for a target of Rs675. If the support at Rs675 fails to arrest the fall, the stock could then slide to the major support at Rs 610.

Hindalco Industries (Rs 102.30): The stock has been in a minor uptrend in the past few weeks. The price action in the last few days suggests that this uptrend is over and the next leg of the fall is underway. The short-term trend now is bearish and the stock could fall to the immediate support at Rs93.

Those holding shares in Hindalco may reduce their holdings while traders may consider short positions with a stop-loss at Rs114 and an initial target of Rs93. The short-term downtrend would gain momentum on a fall below Rs93 and the stock could then slide to the next support level of Rs88.

(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.)