Nifty still on way down; US$ weak in short-term
As long as the Nifty trades below 5,020, there is no reason to even entertain thoughts of going long. <br /><br />
Special to Firstpost
S&P CNX Nifty (4,841.60): The Nifty index ruled firm in the early part of last week and fell 50-points shy of the target of 5,070 mentioned in the week before. The inability to move past the first hurdle at 5,070 and the sharp fall thereafter are distinct signs of weakness.
As observed last week, there is no evidence to indicate that the downtrend off the 22 February high of 5,630 is over. The Nifty has to move past 5,150 to reduce the chances of further price damage. The immediate reference point for the bullish camp would be at 5,020.
As long as the Nifty trades below 5,020, there is no reason to even entertain thoughts of going long. Aggressive traders may consider short positions on pull-back, with a stop-loss at 5,050.
As highlighted in the daily chart, the index reversed from a crucial trendline and a break of the recent swing low of 4,788 would strengthen the case for a slide to 4,610.
Until the index moves past the major resistance at 5,150, there would be a strong possibility of a fall to the target of 4,610. Investors may avoid equity exposures until the Nifty indicates that the bullish forces are in command.
CNX Bank Index (9,267.60): This index too fell marginally short of its target of 9,950 mentioned in the previous week. After touching a high of 9,783 on Tuesday, the index reversed direction and the weakness in bank stocks was instrumental in pulling down the benchmark indices on Friday.
The short-term trend is bearish and a fall to the immediate support at 8,800 appears likely. Investors may avoid exposures in the banking sector until the index moves above the resistance level of 9,950.
USD/INR (Rs 55.55): The US dollar hit the target of Rs 56.50 that has been mentioned in the last few weeks. The short-term outlook for the US dollar is bearish (i.e., the rupee would strengthen) and a breach of the support at Rs 55 would lend momentum to the anticipated fall.
As highlighted in the attached chart, the US dollar has been moving in tune with the red set of trendlines. It is interesting to note that the dollar has struggled to get past the second trendline, which is a sign of weakness.
Unless the dollar makes a swift move above the resistance in the Rs 56.50-56.75 range, there would be a case for a downward correction to the support at Rs 54.50-54.75 band.
Bata India (Rs 860.30): The stock has been one of the top performers in recent months. The recent chart patterns, however, indicate that the stock could get into a downward correction that can extend up to Rs 770. (See chart)
Existing shareholders may take partial profits or at least make trailing stop-losses closer to the price action in order to protect unrealised gains. Aggressive traders may consider short positions with a stop-loss at Rs 925, for a target of Rs 770.
(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.)
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