Punters should make small bets till RBI action on 29 Jan

Special to Firstpost

S&P CNX Nifty (6,074.65): After a weak trend in the early part of the week ended 25 January, the index staged a sharp recovery on Friday. The recent price action, however, does not clear the air of uncertainty surrounding the short-term uptrend.

Quite a few influential stocks, including Tata Motors and Hindustan Unilever, have broken their short-term support levels. The Nifty, however, is still holding above the bearish trigger level of 5,940. Technically, the short-term trend remains bullish as long as the Nifty trades above this level.

A fall below 5,940 would suggest a reversal of the short-term uptrend and the index could then seek the next support level at 5,800-5820. Those holding long positions may have a trailing stop loss at 5,900, basis the spot price.

From a broader perspective, the support at 5,940 and resistance at 6,150 are the levels to watch. A breakout past either of these levels would set the tone for the next significant move in the Nifty. Rather than second guessing the direction of the breakout, it would always be prudent to let the price play its card first.

Ahead of the Reserve Bank’s policy meet and January derivatives contract expiry, it makes sense to reduce the trading bet size. Rather than the index, there are a lot of compelling trading opportunities in individual stocks such as Cipla, NTPC, Strides Arcolab and Rural Electrification Corporation.

CNX Bank Index (12,693.25): This index plays a key role in influencing the overall market trend. The price action and chart patterns this week have been quite interesting and the undertone is relatively more positive for the Bank index.

The short-term outlook for the index remains bullish as long as the index trades above the recent swing low of 12,197. Until this level is breached, there would be a strong case for a rally to the immediate target of 13,100.

As observed last week, those holding long positions may have a trailing stop-loss at 12,100, basis spot price. Individual stocks such as IDBI Bank, Allahabad Bank, Rural Electrification and Union Bank come across as attractive bets to trade from the long side.

Cipla (Rs 397.90): This stock has been on a downward correction for a while now. The price action last week suggests that the recent downtrend is over and the next leg of the uptrend is underway.

Investors may buy the stock with a stop-loss at Rs 375, for a target of Rs 460. Price weakness may be used to enhance exposures. Those willing to play the patient game may get exit opportunities in the Rs 495-500 range.

Strides Arcolab (Rs 1,041.25): Similar to Cipla, this stock too has been in a downward correction in the past few weeks. The sharp recovery on Friday, off the crucial support level of Rs 1,015, is a sign that a short-term low is in place. The stock could rally to the immediate resistance at Rs 1,200.

Long positions may be considered with a stop-loss at Rs 980, for an initial target of Rs 1,200. A breakout past Rs 1,200 would not only lend momentum to the uptrend but would also increase the odds of a rally extending up to Rs 1,350-1,400 range.

(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.)