Nifty may see a counter-trend rally in bearish times

Special to Firstpost

Nifty (5,528.55) : After some semblance of recovery, the sentiment turned sour on Friday, courtesy the disappointment after Infosys’ bleak earnings report. Led by Infosys and other technology stocks, the Nifty took a drubbing on Friday. It is, however, positive to note that the other key sectors, such as banking and FMCG, managed to hold ground and mitigated the damage to the Nifty.

Taking into account the oversold conditions and the positive divergence between the Nifty and technical indicators, there is a case for a counter-trend rally. A move past 5,625 would trigger a buy signal in the Point & Figure chart and would open up possibilities of a rally to 5,800.

While there is a possibility of an upward move from a short-term perspective, the index has to move past 5,970 to indicate a reversal of the medium-term downtrend. Any rally would, therefore, be an opportunity to pare exposures at higher levels.

CNX Bank Index (11,410.10): This index played a key role in preventing a collapse in the Nifty on Friday. It ruled firm, as anticipated last week, and the index is on course to hit the short-term target of 11,700-11,800.

As mentioned in the week to 5 April, while there is a case for a short-term bounce, this does not invalidate the medium-term bearish view. Until the index gets above the 11 March swing high of 12,241, there would be a strong case for a test of the major support at the 10,450-10,500 band.

Godrej Industries (Rs 309.90): After an extended period of consolidation, the stock appears to have resumed its uptrend. The short-term outlook is bullish and a rally to Rs 345 appears likely. A breakout past this primary target of Rs 345 could trigger a rally to Rs 360.

Investors may buy the stock with a stop-loss at Rs 280 for a target of Rs 345. Those willing to play the waiting game may get opportunities to exit at or beyond Rs 360.

Aurobindo Pharma (Rs 174.85) : The stock has been in a medium-term downward correction in the past few weeks. This downward correction appears complete at the recent low of Rs 127.15 recorded on 28 March. The stock now appears to have resumed its uptrend and could rally to Rs 195.

Any price weakness may be used to buy the stock with a stop-loss at Rs 145, for an initial target of Rs 195. Long term investors may wait for a rally to Rs 230 to take profits in the long position.

(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.)