Sit tight, conserve capital, and don't blow it on stocks

Special to Firstpost

S&P CNX Nifty (5,284.20): After a sharp rally the previous week, the index was unable to consolidate its gains. As observed in the previous week, the index is still in a downtrend and the recent recovery off the 26 August lows should be classified as a correction within an overall bearish trend. ( See chart )

A move past the 8 July swing high of 5,741 would indicate a reversal of the medium-term bearish trend. Those who are eager to consider long positions may wait for a breakout past the short-term resistance at 5,500 before committing fresh funds.

Given the concerns relating to the European region, it would be safe to stay at the sidelines and refrain from taking fresh exposures. A look at the technical picture of the 10-year bond yield and the Indian rupee also suggests that there is hardly any reason to cheer for the equity market.

Considering that preservation of capital is of utmost importance for investors and traders, there is no point putting money to risk when the odds are not stacked in your favour.

CNX Bank Index (9,836.35): As observed last week, the upside for the index seems capped and the 10,450-10,500 range would act as a stiff resistance. The short-term trend would turn bullish on a breakout past the resistance at 10,500.

Select banks such as Axis Bank, Bank of Baroda and Federal Bank appear bullish. Investors may use price weakness to build long positions in these stocks and refrain from trading in the index. Stop-loss for long positions may be placed below the recent major swing low.

Aptech (Rs 125.40): After a nice correction, the price action in the past few weeks suggests that the stock has resumed its short-term uptrend. A rally to the immediate resistance at Rs 142 appears likely.

Long positions may be considered on a fall to the Rs 119-122 range, with a stop-loss at Rs 107, for a target of Rs 142. A breakout past Rs 142 would lend momentum to the uptrend and could lead to a test of the next resistance at Rs 153.

Petronet LNG (Rs 170.45): The stock has been a top performer in 2011 and the recent price patterns suggest a resumption of the medium-term uptrend. A rally to the short-term resistance at Rs 191 appears likely. ( See chart )

Investors may buy the stock at the current price and accumulate on weakness, with a stop-loss at Rs 153. Profit in long positions may be taken on a move to Rs 191. Those willing to play the waiting game may get opportunities to exit at Rs 210.

(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.)