Nifty trend is southwards, and banks are leading the fall

Special to Firstpost

CNX Nifty (5,886.20): The market sentiment took a drubbing last trading week after the Reserve Bank of India announced more measures to curb liquidity. The central bank has taken a lot of measures in order to stem the slide in the rupee. While the rupee has sort of stabilised, the stock market has borne the brunt.

It was quite an eventful week for the Nifty and the Bank Index from a technical analysis perspective. While the Nifty reversed right at the key resistance level, the Bank Index has slipped below its prior swing low, confirming the bearish undertone.

The Nifty fell below the minor swing low at 5,910, indicating that the short-term trend is bearish. A fall to the immediate support at 5,600-5,650 appears likely. Unless the Nifty gets above 6,100, the path of least resistance would be on the way down. The technical set-up in the Bank Index lends credence to the bearish Nifty view.

The FMCG index too faltered at a crucial resistance on Friday. Any weakness in this index would lend momentum to the downtrend in the Nifty. The IT Index is probably the only bright spot in an otherwise bearish scenario.

Traders may look for shorting opportunities on any pullback rally towards the 5,950-6,000 range, for a trip down to 5,650. Stop-loss for short positions must be placed above 6,100.

Bank Index (10,465.25): As mentioned above, the recent measures taken by the Reserve Bank of India have affected market sentiment towards banking stocks. The index has slipped below the prior swing low at 10,888, which is a sign of weakness. The sequence of lower highs and lower lows strengthens the bearish case scenario.

Unless the index moves past 11,820, there would be a strong case for a slide to the major support in the 9,250-9,500 range. Aggressive traders may await a pull-back rally and consider long positions at higher levels, with a stop-loss above 11,820 and target of 9,500.

Larsen & Toubro (Rs 845): The stock has been in a downtrend since the beginning of 2013 and there are no signs of completion of this fall as yet. The short-term trend is bearish and the stock appears headed to the next support at Rs 771.

Shareholders may reduce their holdings as the stock is in a downtrend. Traders may consider short positions with a stop-loss at Rs 880 and target of Rs 771. A fall below Rs 771 would lend momentum to the fall and the stock could then slide to the major support at Rs 735-740 range.

State Bank of India (Rs 1,766): The consistent sequence of lower highs and lower lows recorded since January is a sign that the stock is in a steady downtrend. The crack on Friday below the crucial support at Rs 1,815-1,820 range is a sign that the stock is headed to further lows.

The short-term trend is negative and the State Bank could slide to the immediate support level at Rs 1,600. Traders may use any recovery to consider short positions with a stop-loss at Rs.1,900 and target of Rs 1,600.

(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.)