Nifty is running weak; SBI, ICICI and Axis are vulnerable

Special to Firstpost

CNX Nifty (5,944): The Nifty moved up sharply on Thursday but surrendered most of the gains on Friday. While the rally on Thursday helped the index move past the resistance at 5,970, the breakout turned out to be short-lived as the index closed way below this level on Friday.

Taking into account the sharp rally off the low of 5,477, there is a case for at least a short-term downward correction. A fall below Thursday’s low of 5,910 would indicate that the anticipated correction is underway.

This could open up a downside extending to the 5,610-5,630 range. From a trading perspective, there is no compelling reason to consider long positions in the Nifty in the present market scenario.

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Unless the index moves past the recent swing high of 6,112, it makes sense to operate on the assumption that the short-term trend is down. Those already holding long positions may either take profits at current levels or push their stop-loss to 5,850.

[caption id=“attachment_751649” align=“alignleft” width=“380”] A fall below Rs 2,060 could lend momentum to the fall and the stock could then slide to the major support at Rs .1,975. Reuters[/caption]

Bank Index (12,393.60): The stocks in the banking sector took a knock on Friday and the CNX Bank Index played a major role in pulling down the Nifty. Though the index moved past the initial resistance at 12,755, the breakout turned out to be short-lived.

The short-term outlook for the index remains bearish and a breakout past the major resistance at 13,000 is required to invalidate the negative outlook. Unless the index moves above 13,000, the path of least resistance would be on the way down.

Aggressive traders may consider short positions in the index with a stop-loss at 13,000, for a target of 11,600, basis spot price. Out of the banking sector, ICICI Bank, State Bank of India, Punjab National Bank and Axis Bank appear most vulnerable.

State Bank of India (Rs 2,212): This stock took a sharp knock on Friday. The short-term outlook is bearish and the stock could slide to the immediate support at Rs 2,060. Those holding the stock may pare exposures.

Traders may consider short positions on a minor pull-back rally either to or above Rs 2,275, with a stop-loss at Rs 2,375, for a target of Rs 2,060, basis spot price. A fall below Rs 2,060 could lend momentum to the fall and the stock could then slide to the major support at Rs .1,975.

Tata Steel (Rs 311.35): The stock has been in a downtrend for several months now. The recent price action, however, suggests that the stock could seek higher levels from a short-term perspective. The positive divergence between the price action and the 14-day Relative Strength Index strengthens the bullish case scenario.

[caption id=“attachment_751643” align=“alignleft” width=“600”] Chart[/caption]

Long positions may be considered in Tata Steel, with a stop-loss at Rs 290, for a target of Rs 340. A breakout past Rs 340 would be a sign of strength and could propel the stock to the next target of Rs 365.

(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.)