S&P Nifty steadies with recovery, Bank Index lowers

Special to Firstpost

S&P CNX Nifty (5,099.85): In line with expectations, the index ruled weak and also tested the support zone of 5,100-5,120 mentioned last week. The index saw a sharp recovery on Friday and the short-term indicators suggest that the rally could stretch up to the immediate resistance at 5,200.

While the recovery witnessed on Friday is a positive sign, it does not alter the overall bearish set-up. The short-term trend remains bearish until the index clears the key resistance at 5,270.

[caption id=“attachment_394692” align=“alignleft” width=“380”] While the recovery witnessed on Friday is a positive sign, it does not alter the overall bearish set-up. The short-term trend remains bearish until the index clears the key resistance at 5,270. AFP[/caption]

As highlighted in the chart , the index appears to be drifting towards the lower red reaction line at 4,900. Unless there is a quick recovery that pushes the index past the upper blue trendline highlighted in the chart, there would be a strong case for a test of the support at 4,900.

Compulsive Nifty traders may wait for a pullback to consider short positions with a stop loss at 5,300, basis the spot price. Trying to hunt for a trading bottom or taking long positions in anticipation of a bounce off some key support level is a handy recipe to lose trading capital.

CNX Bank Index (10,140.55): The index drifted lower as anticipated last week and also tested the support level of 10,100-10,200. The short-term outlook remains bearish and test of the support level at 9,600-9,620 appears likely. The sharp cut in the banking stocks witnessed Friday strengthens the bearish case scenario.

As observed last week, the private sector banks are trading at or very close to their significant resistance levels while the public sector banks have either broken key support levels or on the verge of doing so. This is a potent combination and could trigger a sharp slide in the Bank Index as well as the Nifty.

The index has to move past the major resistance at 10,800 to indicate reversal of the short-term downtrend. Else, a slide to the major support at 8,900-9,000 appears likely.

**Tata Steel (Rs.399.15):**The stock has cracked sharply in the last couple of weeks and the price is now at an area of support. The Friday’s recovery suggests that the stock could see a short-term bounce to the immediate resistance at Rs 420. ( See chart )

Long position may be considered in Tata Steel on weakness, with a stop loss at Rs 378, for a target of Rs 420 to begin with. A breakout past Rs 420 could trigger a rally to the major resistance at Rs 445.

Axis Bank (Rs.997.15): The stock is in a downtrend and the recent price action suggests that a test of the immediate support at Rs 945 appears likely. Shareholders may use rally to pare exposures while traders may consider short positions on a pull-back with a stop loss at Rs 1,070. A fall below Rs 945 would lend momentum to the fall and could trigger slide to the major support at Rs 910.

(The views and recommendations featured in this column are based on the 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.)