Nifty, Bank Index sending contrary signals - so watch out

Special to Firstpost

CNX Nifty (6009): After some volatile action in the early part of the week ended 12 July, the index staged a sharp recovery in the last couple of trading sessions. Friday turned out to be quite an eventful one for the market. Infosys managed to prop market sentiment with better-than-expected June quarter earnings.

The most interesting aspect was that the key economic data were released after market hours on Friday and the data wasn’t too encouraging.

Technically, the index moved in line with expectations and managed to break out past the resistance at 5,970. The Nifty, however, still has to contend with stiffer resistance at 6,135. The key levels to watch are 5,900 on the lower side and 6,135 on the higher side.

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A breakout past either of these levels would set the tone for the next big move in the Nifty. The minimum retracement requirement having been met, a breakout past 6,135 would suggest that the index is indeed headed to new highs.

The price action in the next few trading sessions would provide clues about the near and medium-term trend in the index. As long as 6,135 is not breached, the index would be vulnerable to a test of the immediate support at 5,650-5,750.

Bank Index (11,722.80): The disparate price action between the Nifty and Bank Index (highlighted in prior weeks) got starker during the week gone by. While the Nifty has retraced more than 61.8 percent of the prior fall, the Bank Index is still hovering near the 25 percent retracement.

The Bank Index has to move past the swing high at the 12,000-mark to indicate a reversal of the recent downtrend. A fall below the 11,000-level would indicate that the short-term trend is still down. As always, it makes sense to await clues from price before judging the direction of the next big move.

Aurobindo Pharma (Rs 191.30): The sequence of higher highs and higher lows since 13 June is a sign that the stock is in a short-term uptrend. The breakout this week past the key resistance at Rs 188 confirms the positive undertone. The stock could now head to the next resistance at Rs 220.

Investors may buy the stock at current levels as well as on declines, with a stop-loss at Rs 174 and a target of Rs 220. A breakout past Rs 220 could trigger a rally to the next target of Rs 240.

GAIL (Rs 322): The stock has been in a downtrend over the past several months. The recent recovery in price off the 24 June low comes across as a correction within a downtrend. This upward correction appears complete and the stock could seek lower levels.

[caption id=“attachment_953469” align=“alignleft” width=“600”] The stock has been in a downtrend over the past several months[/caption]

As long as the stock stays below the major resistance at Rs 370, there would be a strong case for a slide to Rs 270. Existing stakeholders in GAIL may use any rally to reduce exposures in the company. Short positions may also be considered at higher levels with a stop-loss at Rs 370 and target of Rs 270 or lower.

(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.)