This chart shows why Nifty could get into a downside correction from here

Special to Firstpost

CNX Nifty (5,850.60): After a sharp rally on Tuesday, the index remained largely range-bound in the remaining three days of the week. The Nifty has reached its upside potential and also hit the target zone of 5,950-6,000 mentioned last week. The completion of a “bearish engulfing” candlestick pattern on Thursday, right at the crucial resistance of 5,950, is a sign that the Nifty could get into a healthy downside correction.

As long as the Nifty trades below the swing high at 6,093, there would be a strong case for a slide to 5,650-5,700 range. A breach of 5,650 level could lead to a test of 5,450-5,500 range.

[caption id=“attachment_1108927” align=“alignleft” width=“380”] Nifty is in for a correction[/caption]

While the Nifty has recovered smartly off the low of 5,115, the index has to get above 6,093 to break the bearish sequence of lower highs and lower lows. Unless 6,093 is taken out, the recent pull back would still be considered as a corrective rally within a broad downtrend. A move past 6,093 would indicate that the worst may probably be over for the index.

Bank Index (10,180.45): The stocks from the banking sector were among the top performers this week. Buying interest was evident in the public sector stocks with State Bank, Punjab National Bank and Bank of Baroda topping gainers list.

As observed last week, the index is on course to hit the target of 10,850-11,000. A fall below 9,600 would negate the positive view. Along with the public sector banks, select private sector banks such as Kotak Mahindra, HDFC Bank and IndusInd Bank come across as compelling portfolio candidates from a long term perspective.

Ranbaxy Laboratories (Rs 457.20): After a sharp rally, the stock hit a resistance of Rs 471 and has since retreated in the last couple of trading sessions. The failure to get past the resistance level is a sign of weakness. Unless the stock quickly sprints past Rs 480, there would be a strong case for a slide to the immediate support at Rs.425-430 range.

Investors holding the stock may trim exposures while traders may consider short positions with a stop loss at Rs.480 and target of Rs.430. Fresh buying may be avoided until the stock moves past the bullish trigger level at Rs 480.

Punjab National Bank (Rs 514): After a major downtrend, the stock has been in a recovery mode in the last couple of weeks. The price action in the past few days suggests that the recovery process could extend up to the near term resistance at Rs 575-580 range.

[caption id=“attachment_1108921” align=“aligncenter” width=“600”] The price action in the past few days suggests that the recovery process could extend up to the near term resistance at Rs 575-580 range.[/caption]

Investors may consider long position in the stock with a stop loss at Rs 470 and target of Rs 575. Price weakness may be used to build long positions in the stock. A breakout past Rs.580 could lend momentum to the uptrend and the stock could then seek the next resistance at Rs 600-610.

(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.)