Nifty in correction mode, but the bulls are still in business

Special to Firstpost

S&P CNX Nifty (5,676.05): The price action during the week gone by suggests that the Nifty is in a corrective phase. It is, however, positive to note that the price has not cracked sharply and the correction seems more organised and gentle. It is easier to live with such corrections rather than the ones that are sharp, one-sided and all-pervasive.

 The other pertinent feature of the correction is that the mid-cap stocks have held ground, which is a sign that there are participants willing to step-up and buy. Even in the large-cap space, a select set of stocks/sectors have borne the brunt while others have not been affected. This also strengthens the case that the bullish trend is intact and the ongoing fall is just a correction within an uptrend.

As highlighted in the attached chart, the immediate support for the Nifty is at the red line in the centre, which is currently at 5,600. A fall below this line would indicate that a much deeper correction is underway and the index could then slide to the major support at 5,475-5,500. The entire premise of a bullish trend would be under threat only if the Nifty falls below 5,450.

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CNX Bank Index (11,388.45): If the Nifty gets into a deeper price-wise correction, it would most likely be triggered by the weakness in the banking sector. Unlike the Nifty, the banking index has not made a convincing move past the resistance at 11,900 and is now trading just above the minor support at 11,300.

If the index fails to hold above this support, there would be a case for a slide to the major support at 10,700-10,800 range. As long as the index trades below the resistance at 11,550, it would be safe to operate on the expectation that the index would slide to the major support at 10,700.

IDFC (Rs 151.05): This stock has been in a downward corrective phase in the past few trading sessions. On Thursday, the stock took bounced off the crucial support at Rs 148, which is a positive sign. The short-term outlook is bullish and a rally to Rs 167 appears likely.

Investors may buy the stock with a stop-loss at Rs 143, for an initial target of Rs 167. A breakout past the target-cum-resistance at Rs 167could trigger a rally to the major resistance at Rs 178.

Punjab National Bank (Rs 820.30): The stock moved up sharply in the past few weeks and the rally was arrested right at the resistance at Rs 840-850 range. The inability to get past the resistance is a sign of weakness and the recent price action suggests that a slide to Rs 750 is likely.

 Investors may pare exposures in the stock while short positions may be considered on minor rally, with a stop-loss at Rs 876, for a target of Rs 750. A breach of the first support at Rs 750 would lend momentum to the downtrend and the stock could then target the major support at Rs 715.

(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.)