Nifty's correction is not yet done; rally to 5,700 postponed

Special to Firstpost

S&P CNX Nifty (5,317.90): Though the index exhibited strength in the early part of the trading week to 16 March, the sharp fall in the last couple of trading sessions indicates that the downward correction that commenced on 22 February is not over as yet.

The failure to get past the prior swing high at 5,459 strengthens the view that the downward correction is incomplete. The index now has to move past 5,500 to indicate resumption of the medium-term uptrend.

As long as the index trades below 5,500, there would be a strong case for a slide to the major support at 5,050. While the chart patterns indicate the scope for short-term weakness, it does not invalidate last week’s view of a rally to 5,700.

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[caption id=“attachment_248152” align=“alignleft” width=“380” caption=“The journey towards 5,700 is postponed and would resume once the short-term downtrend is over.”]  [/caption]

The journey towards 5,700 is postponed and would resume once the short-term downtrend is over. Those anxious to increase equity allocation may wait until the index moves above the red line highlighted in the chart.

CNX Bank Index (10,391.35): The chart pattern in this index was similar to the Nifty. And, the weakness in this index was instrumental in pulling down the benchmark indices. The short-term trend is bearish and a test of the immediate support at 9,900 appears likely.

Unless the index moves above the resistance at 10,950, the path of least resistance would be on the way down. The rally to the target of 11,500, mentioned last week, would resume on the completion of the anticipated short-term fall.

Those who are have a higher weightage of banking sector stocks in their portfolio may seek some protection via put options as the short-term outlook is bearish.

Hindalco Industries (Rs 140.35): The stock, recommended as a short-sell candidate on 18 February, has hit the then mentioned target of Rs 129. After a brief rally, the stock appears now to be in a short-term downtrend.

Short positions may be considered with a stop-loss at Rs 146, for a target of Rs 139. A fall below Rs 139 would impart momentum to the downtrend and the stock could then test the major support at Rs 124.

State Bank of India (Rs 2,227.95): After a sharp run-up, the price action in the past few days indicates that the stock is in the early stages of a downward correction. A fall to the immediate support at Rs 2,120 appears likely.

[caption id=“attachment_248151” align=“alignleft” width=“600” caption=“A fall to the immediate support at Rs 2,120 appears likely”]  [/caption]

A fall below Rs 2,120 could trigger a slide to Rs 1,950. Short position may be considered with a stop-loss at Rs 2,380, for a target of Rs 2,120.

(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.)