Nifty in southward stance: SBI and Reliance are weak links

Special to Firstpost

S&P CNX Nifty (5,887.40): The Nifty moved in line with expectations and continues to seek lower levels. As observed last week, the Nifty is on course to hit the short-term support at 5,650-5,700 range. The banking auto and pharma indices come across as prime suspects that could push the Nifty to lower levels.

While the cut in the Nifty appears relatively modest, the dent to the overall market sentiment has been more pronounced, courtesy the carnage in small and mid-cap stocks. Any recovery towards the erstwhile support at 5,940-5,980 range would be an opportunity to short the index with a stop-loss above the recent high of 6,112, basis spot Nifty levels.

Looking at the individual index heavyweights, State Bank of India and Reliance Industries come across as weak links. The short-term outlook for Hindustan Unilever is positive and this stock could act as a shock absorber, albeit to a limited extent.

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CNX Bank Index (12,336.55): The bank index continues to hold above its bearish trigger level of 12,250. This, however, does not indicate that the underlying trend is bullish. From a short-term perspective, a breakout past the crucial resistance at 12,960 would do a world of good to this index as well as the Nifty.

Considering that the Nifty and this index have seen a one-sided move down, there is a possibility of a rebound off oversold levels. Any such recovery could run into resistance in the 12,400-12,500 range.

The technical indicators and chart patterns suggest that the index could ease to the immediate support in the 11,700-11,800 range. Fresh long positions may be avoided in banking stocks until the index displays signs of stability.

IDFC (Rs 158.05): The stock has been in a minor downward correction off the 7 January high of Rs 184. The price action last Friday suggests that this correction may be over and the stock could now seek higher levels from a short-term perspective.

[caption id=“attachment_627925” align=“alignleft” width=“600”] Long positions may be considered with a stop-loss at Rs 150, for a target of Rs 170.[/caption]

The completion of a “key reversal day” pattern along with an “outside day” pattern is a sign that the downward correction may have been arrested on Friday. Long positions may be considered with a stop-loss at Rs 150, for a target of Rs 170. A breakout past Rs 170 could trigger a rally to the major resistance at Rs 180.

Hindustan Unilever (Rs 462.10): The recent sharp correction in this stock appears to have been arrested at the 23 January low of Rs .447 and the subsequent price patterns suggest that the stock is into a short-term uptrend. A rally to the immediate resistance at Rs 490 appears likely.

The stock may be bought at current levels as well as on weakness with a stop-loss at Rs 443, for a target of Rs 490. A breakout above Rs .490 could lend momentum to the uptrend and the stock could seek the next resistance at Rs 505.

(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.)