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.

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.)