Nifty downtrend to continue

Special to Firstpost

S&P CNX Nifty (5,207.45): The index is groping for direction and the price action during the week gone by does not negate the bearish view. The sharp reversal during the latter half of Friday’s trading is a cause of concern. This could be a forewarning that the volatility is picking up.

The index has been ruling within in a relatively narrow range in the past few weeks, resulting in a contraction in volatility. This kind of contraction is typically followed by a strong directional move.

Considering that there are no signs of a reversal of the downtrend that commenced on 22 February, there is a case to expect the downtrend to gather momentum. Unless the index moves above 5,400, it would be safe to work on the premise that the downtrend is in force.

If the immediate support at 5,130 does not hold, it would not be too long before 4,950 is hit. Investors may adopt a cautious approach and avoid big ticket equity exposures in the current environment.

CNX Bank Index (10,306.25): With the Reserve Bank of India’s policy meet round the corner, the stocks from the banking sector would be in the thick of action this week. Ahead of a crucial event, it makes sense to remain in the sidelines and avoid large trading bets.

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When a spike in volatility is expected, it is advisable to reduce the bet size to protect capital. As observed in earlier weeks, the index is in a downward correction and a breakout past 10,950 is required to negate this view. As long as the index trades below 10,950, it would not be unreasonable to expect a slide the short-term support at 9,820.

Ranbaxy Laboratories (Rs.499.85): The stock, recommended as a long candidate a couple of weeks ago, has hit the then mentioned target of Rs.520. The completion of a “key reversal day” pattern at the resistance level of Rs.520 is a sign that the stock could get into a downward correction.

Short positions may be considered with a stop loss at Rs.522, for a target of Rs.480. A fall below Rs.480 would be a major sign of weakness that could push the stock to the next support at Rs.450.

IDBI Bank (Rs.105.45): The stock has been drifting lower in the recent weeks and the technical patterns suggest that a fall to the immediate support at Rs.95 is likely. Those holding long positions may reduce exposures.

Short positions may also be considered with a with a stop loss at Rs.112, for a target of Rs.95.

(The views and recommendations featured in this column are based on the 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.)