Technicals: Nifty recovery impressive but index still below key resistance

Special to Firstpost

The stock market sentiment was positive during the week gone by with the index posting a 3% gain. Though the recovery was impressive, the Nifty is still trading below the key resistance at 6,250. The upside move would gain momentum on a breakout past this resistance.

The near term trend would hinge on what the Nifty does in the next few days. A breakout past 6,250 would be a sign of strength and could help the index seek the next resistance at 6,358. A fall below 5,970 would be a bearish sign and could push the Nifty to the key support at 5,750-5,800.

Rather than the Nifty, there are far more compelling trading opportunities in individual stocks. It would be worth the while to concentrate on such stock specific opportunities. Stocks such as BHEL, Power Finance Corporation, Bank of India, VIP Industries and Arvind come to mind readily.

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CNX Bank Index (11,153.95): The short-term outlook for the index too is contingent on the direction of the breakout. The index is confined within the key resistance at 11,750 and support at 10,400. Rather than second-guessing the direction of the breakout, it would always make sense to let the price take the lead and provide the clue about its intended direction.

Quite a few influential names from the banking sector are in the midst of a consolidation pattern. Given this context, it is just a question of time before the bank index makes a decisive move. Above 11,750, the index could rally to 12,750-13,000 while a fall below 10,400 would be a sign of weakness and could push the index down to 8,500-9,000.

Power Finance Corporation (Rs.159.15): After a four-day consolidation, the stock appears to have resumed its short-term uptrend on Friday. The sharp rally on Friday, along with increased trading volume, suggests that the stock has resumed its short-term uptrend.

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Long positions may be considered with a stop loss at Rs.147 and target of Rs.180. The uptrend would gather momentum on a breakout past Rs.180 and the stock could then rally to the major resistance at Rs.190.

Bank of Baroda (Rs.647): After a sideways congestion pattern, the stock seems to have resumed its uptrend on Friday. The huge white candlestick formed on Friday is a bullish sign and indicates buying interest in the stock.

Investors may buy this stock with a stop loss at Rs.605 and target of Rs.730. A rally beyond the first resistance at Rs.730 would propel the stock to the major resistance at Rs.765.

(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.)