Nifty headed for further lows: rallies may be short-lived

Special to Firstpost

S&P CNX Nifty (5,903.50): The cautious view featured in recent weeks has been justified by the persistent weakness in the Nifty during the week gone by. The index has fallen below the crucial bearish trigger level of 5,940 that was referred to in earlier weeks. This is a sign of weakness and indicates that the index could now seek further lows.

Any rally now would be an opportunity to consider short positions in the Nifty, with a stop-loss above the recent high of 6,112. As highlighted in the chart, the immediate target-cum-support for the downtrend is in the 5,800-5,820 range.

[caption id=“attachment_619538” align=“alignleft” width=“549”] Chart 1.[/caption]

Looking at the individual index heavyweights such as ONGC, Reliance Industries, Hindustan Unilever, ITC and the State Bank of India, there appears to be a case for a much deeper correction in the Nifty extending up to the 5,650-5,700 range.

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While fresh long positions may be avoided until the index moves above 6,150, short positions may be considered on any recovery, for a slide to 5,800. Sector-wise, banking, oil and gas along with FMCG could take the lead role in pushing the Nifty down.

CNX Bank Index (12,280.15): While the Nifty has cracked below its bearish trigger level, this index is just hovering above the corresponding trigger level of 12,250. The chart pattern in the index and the technical set-up in the individual banking stocks indicate the scope for short-term weakness.

State Bank of India is set to announce its quarterly earnings next week. This could be a significant trigger to the bank index as well as the Nifty. Unless the bank index gets above 12,960, there would be a strong case for a slide to the immediate support at 11,650-11,700 range. Fresh long positions may be avoided in banking stocks until the index displays signs of stability.

Trades may use any recovery in the index to consider short positions with a stop-loss at 13,000, for a target of 11,700, basis spot price.

Yes Bank (Rs 509.50): The stock has been one of the top performers in the past few months. The recent price action, however, indicates that the stock could get into a significant downward correction. The completion of the Bearish Engulfing candlestick pattern is a cause of concern.

The occurrence of this pattern near significant resistance of Rs 541 strengthens the case for a short-term correction. Those holding the stock may pare exposures while short positions may also be considered on a rally, with a stop-loss at Rs 545 and target of Rs 455.

[caption id=“attachment_619540” align=“alignleft” width=“620”] Chart 2[/caption]

Mahindra & Mahindra (Rs 882.80): After a sharp rally, the stock has been in a downward correction in the past few weeks. The technical indicators suggest that the stock could seek lower levels of Rs 815-820 in the near term.

In the event on a rally, investors may reduce their holdings in the stock for a re-entry opportunity at lower levels. Traders may consider short positions with a stop-loss at Rs 930 for an initial target of Rs 820.

(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.)