Technicals: Why short-term outlook for Nifty remains bearish

Special to Firstpost

CNX Nifty (5,651.35): The week gone by was quite an eventful one for the stock markets. The Nifty closed on a weak note on all the five trading sessions of the week and the outcome of the RBI meeting on Tuesday was overshadowed by the developments on the political front.

As observed last week, Reliance Industries, ONGC and ICICI Bank played a key role in dragging the index down. The downtrend also accelerated once the bearish trigger level of 5,791 (highlighted last week) was breached.

The short-term outlook for the Nifty remains bearish and the swing high at 5,972 is now the reference point for the bullish camp. The Nifty has to get past this swing high to indicate a reversal of the recent downtrend.

That the Nifty is still trading above the major swing low of 5,548 is the only comforting factor for those still harboring a positive view. Unless the index clears 5,972, there would be a strong case for a test of the major support level at 5,300-5,350. Any intermittent recovery would present an opportunity to short the Nifty, with a stop loss at 5,972.

Bank Index (11,204.05): This index too closed on a weak note for five trading sessions in succession. That the momentum behind the fall has decelerated in the last couple of trading sessions is the only positive feature. The short-term resistance for the index is at 11,512.

Those holding short position in the Bank Index may have a trailing stop loss at 11,560, basis spot price. The index however has to move past the major resistance at 12,250 to indicate the reversal of the downtrend.

As long as the index trades below 12,250, there would be a strong case for a slide to the major support at 10,000-10,200 range.

Sun Pharma (Rs.820.50): This stock has been on a steady uptrend in the past few months. The rally however seems to have hit a road block at the key resistance of Rs.840-845 range. The price pattern in the past few trading sessions indicates that the stock could get into a short-term corrective phase and seek lower levels.

Shareholders in Sun Pharma may take profits while the aggressive traders may consider short positions with a stop loss at Rs.858, for a target of Rs.785. The downtrend would gain momentum if the support at Rs.785 is breached and the stock could then slide to the Jan.21 swing low of Rs.694.

Jubilant FoodWorks (Rs.1,179.35): The sharp recovery off the March 1 low was arrested on March 15. The price action since March 16 suggests that the stock has resumed its short-term downtrend.

[caption id=“attachment_672563” align=“alignleft” width=“600”] The price action since March 16 suggests that the stock has resumed its short-term downtrend.[/caption]

Existing shareholders may pare exposure. Active traders may use may recovery to take short positions with a stop loss at Rs.1,325 and target of Rs.1,010. A look at the longer term charts indicates that the stock could seek much lower levels.

Unless there is a quick reversal and a breakout past Rs.1,325, there would be a strong case for a test of the major support at Rs.775-800 range.