Time to raise equity allocation, but watch for Nifty 5,200

Special to Firstpost

S&P CNX Nifty (5,429.30): The much anticipated downward correction materialised during the week gone by. The index now is at the first support level of 5,410 and it remains to be seen if this level holds. The major support lies in the 5,200-5,310 range. The recent uptrend would, however, be under threat only if the lower end of the support at 5,200 fails to hold ( **See chart** ).

As emphasised in prior weeks, a short-term correction is underway, offering a better entry opportunity. Long-term investors may use this correction to increase equity allocations. However, as a measure of risk management, investors may need to get cautious if the index falls below the 5,000-mark.

[caption id=“attachment_225070” align=“alignleft” width=“380” caption=“The index now is at the first support level of 5,410 and it remains to be seen if this level holds.”]  [/caption]

A breach of the 5,000-level would be a sign that the index could get into a deeper correction, which could offer better entry opportunities. Hence, investors may adopt a calibrated approach while allocating funds to equity as an asset class.

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CNX Bank Index (10,506.80): The crack in this index was instrumental in pulling down the benchmark indices. While the momentum behind the fall in the last few days has been scary, the slide has not done any damage to the uptrend that commenced on 20 December.

The index now is hovering just above the first support level of 10,200-10,400. What the index does at this support zone would be critical in deciphering the next major move. A failure to hold above 10,200 would be a sign of weakness and may trigger a slide to the major support at 8,800-9,000 range.

ICICI Bank (Rs 931.60): After a sharp run-up in the recent weeks, the stock has gotten into a short-term downward correction this week. The price action suggests that a test of the short-term support at Rs 835 appears likely. Those holding long positions may take at least partial profits while traders may consider short positions with a stop-loss at Rs 995 for a target of Rs 835 ( **See chart** ).

Rural Electrification Corporation (Rs 205.20): The short-term outlook for the stock is bearish and the chart patterns indicate a fall to the immediate support at Rs 175. Short positions may be considered on a rally, with a stop-loss at Rs 248, for a target of Rs 175.

Investors having long positions may use this rally to prune exposures. Evidence of support near the Rs 175-mark may be used to consider fresh entry.

(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.)