Nifty recovers from Tuesday shock, but still away from secure footing

Special to Firstpost

CNX Nifty (5,471.80): The stock market witnessed a dramatic turn of events during the week gone by. After a sharp sell off on Tuesday, the market cracked sharply in the opening trade on Wednesday. There was however a sharp recovery in the latter half of Wednesday which helped the Nifty close near the day’s high. The follow-up rally in the next couple of days was impressive as well.

Despite the recent pull back rally, the Nifty technically is still in a downtrend. A breakout past the swing high at 5,765 is required to indicate that a meaningful bottom is in place at Wednesday’s low of 5,118.

Though a breakout past the minor swing high at 5,529 would be an early sign of strength, it would be prudent to await a move past 5,765 to be sure of a reliable trend reversal. Until then, it would be advisable to look for selling opportunities on any sign of weakness at higher levels.

More from Investing

MSMEs are breaking the traditional convention. Look who’s funding them Scale-up your startup without an investor! Here’s how

[caption id=“attachment_1075625” align=“alignleft” width=“380”]  Currency woes. Reuters[/caption]

For a short-term trader, the minor swing low at 5,379 and the swing high at 5,529 are the key reference points. A move past either of these levels would set up an opportunity for a short-term trend in the direction of the breakout. A breach of 5,379 would push the Nifty to the support at 5,200-5,250 range.

Bank Index (9,049.20): The bank index, this week, bounced off a crucial support level of 8,400. While this is significant, the index now has to show some intent to continue its recent recovery process. A move past the resistance at 9,600 would be an early sign that the things are turning around for the bank index.

On the contrary, a failure to clear 9,600 would mean that the index could slide to the lower end of the major support zone at 7,800. Considering that the risk-reward is compelling, active traders may consider long positions on weakness, with a stop loss below the recent low, for a target of 9,600. Above 9,600, the index could rally to 10,200-10,300 zone.

Mahindra & Mahindra Financial Services (Rs 251.45) : After a brief consolidation, the stock seems to have resumed its uptrend this week. A buy signal has been triggered in the Point & Figure chart as well, pointing to a target of Rs 294.

Investors may buy this stock at the current levels and on weakness, with a stop loss at Rs 220 and target of Rs 294. A breakout past Rs 294 could propel the stock to the major resistance at Rs 330.

Reliance Communications (Rs 123.10): After a brief downward correction, the price action in the past few days suggests that the stock has resumed its medium-term uptrend. The short-term outlook is bullish and the stock could rally to the immediate resistance at Rs 140.

Long position may be considered in the stock with a stop loss at Rs114 for a target of Rs140. A breakout past Rs140 could trigger a rally to the significant resistance at Rs150-153 range.

(The views and recommendations featured in this column are based on the 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.)