Reliance and IT stocks are key to next phase of bull run

Special to Firstpost

S&P CNX Nifty (6,064.40): Contrary to expectations, the Nifty ruled firm and also managed to settle above the psychological 6,000-mark during the trading week ended 18 January. While the Nifty managed to eke out a 110-point gain for the week, the slowdown in the underlying momentum is a cause of concern.

While the waning momentum is a worrying factor, it does not necessarily mean a reversal of the bullish trend. The short-term target for the index at 6,200-6,300 remains intact and the recent swing low of 5,940 now becomes the reference level for the bullish camp.

The short-term trend remains bullish as long as the index trades above 5,940. A breach of this level would mark the start of a downward correction.

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It is, however, positive to note that after years of underperformance, the CNX Energy index is displaying signs of a pick-up in momentum. This index, along with Reliance Industries, has underperformed the benchmark indices in recent years.

[caption id=“attachment_594241” align=“alignleft” width=“380”]  The short-term trend remains bullish as long as the index trades above 5,940. A breach of this level would mark the start of a downward correction. Reuters[/caption]

The recent price action indicates that the CNX Energy index could play a key role in propping up the Nifty. Along with the energy sector, the CNX IT index too could play a role in supporting the Nifty. On the other hand, the Auto Index and the FMCG Index may act as a drag on the benchmark indices.

CNX Bank Index (12,680): This index has been a key driving force behind the Nifty for several months now. It is, however, interesting to note that the Bank Index did not contribute much to the Nifty’s gain during the just concluded week. The CNX Energy index took over the mantle instead.

The recent price action suggests that the 12,840 level is turning out to be a strong resistance. A breakout past 12,840 would propel the index to the next target of 13,450.

It is imperative that the index picks up some momentum quickly and clears the 12,840-level to sustain the bullish fervor. Else, a significant downward correction may ensue.

A fall below 12,100 would be an early warning that a significant downward correction is underway. Those holding long positions may have a trailing stop loss at 12,100, basis spot price.

NTPC (Rs 164.50): This stock has been a huge underperformer in the past several months. The recent price action, however, indicates that the buyers are getting active in the counter. The stock could rally to the immediate resistance at Rs 180.

[caption id=“attachment_594245” align=“alignleft” width=“600”]  The recent price action, however, indicates that the buyers are getting active in the counter[/caption]

Investors may include this stock in their portfolio. Traders may consider long positions with a stop-loss at Rs 150. Price weakness may be used to accumulate the stock. A breakout past Rs 180 could push the stock to the major resistance at Rs 191.

Tata Steel (Rs 415): The stock has been in a recovery mode since 6 September. The sequence of higher highs and higher lows recorded in the past few months confirm that the stock is in an uptrend. The recent price action indicates that a rally to Rs 460 is likely.

Long positions may be considered with a stop-loss at Rs 400, for an initial target of Rs 460. A breakout past Rs 460 could help the stock rally to the major resistance at Rs 475.

(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.)