Nifty bulls shuffle their feet; rally has no real strength

Special to Firstpost

S&P CNX Nifty (5,386.70): The Nifty was range-bound during the week gone by. Its inability to make headway on the upside remains the main cause of concern. The series of small bodied candlesticks formed in the daily chart is a sign of lack of conviction amongst market participants.

There is no point trading the index in the absence of a well-defined trend and momentum. The best strategy to deal with such a market scenario is to stay away and remain on the sidelines. As highlighted in the attached chart above, the index is struggling to make progress beyond the centre green line.

[caption id=“attachment_430263” align=“alignleft” width=“380”]  The Nifty could then slide to the major support at 5,195. On the upside, a breakout past 5,500 is required to suggest that the bullish camp is in charge of the proceedings.[/caption]

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While it is prudent to wait for the price to give a clue about where it is headed, a fall below 5,330 would be an early sign that a short-term downtrend is underway. The Nifty could then slide to the major support at 5,195. On the upside, a breakout past 5,500 is required to suggest that the bullish camp is in charge of the proceedings.

Unless 5,500 is taken out, it is safe to work on the premise that the upside is capped and the path of least resistance is on the way down.

CNX Bank Index (10,332.85): The lack of direction in this index is the primary reason for the lacklustre activity in the Nifty. Within the banking sector, the ones from the private banking space are relatively stronger in comparison to their public sector counterparts that are essentially in a downtrend and ruling near key support levels.

Even among private sector banking stocks, most stocks have been stuck in a trading range. The outlook for quite a few private sector banks appears bearish from a short-term perspective.

If the recent slide in public sector banks continues, it would result in a breach of key support and trigger an accelerated move down. A look at the technical patterns indicates that the Bank Index is just biding its time before resuming its next leg of the downtrend. Unless the index clears the resistance at 10,950, there would be a strong case for a slide to the immediate support at 9,850.

Dabur India (Rs 123.05): Stocks from the consumer staples sector have attracted buying interest and this stock too has been one of the gainers in the past few weeks. The short-term outlook is bullish and the stock could test the immediate target-cum-resistance level of Rs 136.

Investors may buy the stock with a stop-loss at Rs 115.50, for a target of Rs 136. The uptrend would gain momentum on a breakout past Rs 136 and a subsequent move to Rs 142 may materialise.

Rural Electrification Corporation (Rs 202.70): The stock has turned weak at a crucial resistance, which is a sign of weakness. The short-term outlook is negative and a slide to the support at Rs 180 appears likely.

[caption id=“attachment_430266” align=“alignleft” width=“600”]  The stock has turned weak at a crucial resistance, which is a sign of weakness.[/caption]

Shareholders may pare exposure in the stock while traders may consider short positions on a minor pull-back rally, with a stop-loss at Rs 217, for a target of Rs 180, based on the cash price.

(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.)