Nifty in bullish mode, but don't bet the farm on equity - yet

Special to Firstpost

S&P CNX Nifty (5,325.85): The trend during the week to 3 February was distinctly bullish and the index now is within striking distance of the crucial bullish trigger level of 5,400. The chart patterns and the technical set-up in the index heavyweights indicate that the Nifty may sail past this level quite comfortably.

While a breakout past 5,400 would be a strong signal that the index is in the early stages of a major bullish trend, it does not necessarily imply that investors should rush in to bet the farm immediately.

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The recent uninterrupted rally has pushed the index to an overbought zone and warrants caution as the rally could run of steam soon. Prices always have the tendency to get into a counter-trend corrective mode which may be used to park funds in equity assets. Until there is a correction, it would be safer to avoid equity exposures.

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CNX Bank Index (10,133.65): Last week’s anticipated downward correction lasted just for a day and the index resumed its uptrend from Tuesday. While this is a sign of strength, the momentum behind the rally is unlikely to sustain for long, leading to a nominal correction.

In the event of a correction, the index is likely to seek support in the 9.250-9,500 zone. From a medium-term perspective, the index appears to be headed to the next significant resistance at 11,500.

Considering that banking stocks have a significant weightage and influence on benchmark indices, any correction may be used to take significant equity exposures in the banking /financial services sector.

Rallis India (Rs 135.60): After a major downward correction, the recent price action indicates that the stock is in a short-term bullish trend. The stock could rally to the immediate resistance at Rs 150.

Long positions may be considered with a stop-loss at Rs 120, for an initial target of Rs 150. A breakout past Rs 150 could trigger a rally to the major resistance at Rs 160.

Aurobindo Pharma (Rs 120.35): The stock is in a short-term uptrend and the chart patterns indicate that a rally to Rs 140 appears likely. The stock may be bought with a stop-loss at Rs 94, for a target of Rs 140.

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A close above Rs 135 would lend momentum to the uptrend and the stock could then target the major resistance at Rs 152. As long as the stock trades above Rs 94, there would be a strong case for a rally to Rs 152.

(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.)