Use rally to pare exposures; best to wait for Nifty to hit 5,100

Special to Firstpost

S&P CNX Nifty (4,714): After a huge selloff, the index took a breather during the week gone by. The recovery witnessed during the week appears incomplete and could extend up to the Nifty 4,860-4,930 range.

[caption id=“attachment_164569” align=“alignleft” width=“380” caption=“Index has to move past the bullish trigger level of 5,100 to indicate a reversal of the downtrend. Reuters”]  [/caption]

While there is an upside potential from a near-term perspective, there is nothing to suggest a reversal of the medium-term bearish trend. As mentioned in the week before, the index has to move past the bullish trigger level of 5,100 to indicate a reversal of the downtrend.

Until 5,100 is taken out, it would be safe to work on the premise that the index is headed to the next support at 4,350. Investors may use any rally to pare exposures while those willing to take a positional bet may wait for a breakout past 5,100.

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CNX Bank Index (8,296.45): Similar to the Nifty, this index too is likely to continue the recovery process witnessed in the week before. A rally to the immediate resistance at 8,600-8,800 appears likely.

Though the short-term outlook is bullish, the index is likely to resume the downtrend on the completion of the anticipated rally. While a fall below 8,064 would be an early sign of resumption of the medium-term downtrend, a breakout past the 7 December swing high of 9,274 to indicate reversal of the medium-term downtrend.

Power Finance Corporation (Rs 133.70): After a brief rally, the stock resumed its downtrend since 5 December. The recent price action suggests that the stock could ease to the immediate support at Rs 101. It has to move past the resistance at Rs 149 to indicate reversal of the downtrend.

Shareholders may use the rally to trim exposures. Any upward move may also be used to initiate short positions, with a stop-loss at Rs 149, for a target of Rs 101.

Sun Pharmaceutical (Rs 498.45): The stock now is traded just above the crucial support in the Rs 486-490 range. As long as this support is not breached, there is a fair chance of a rally to the immediate resistance at Rs 540.

[caption id=“attachment_164568” align=“aligncenter” width=“620” caption=“Long positions may be considered at current levels and on weakness, with a stop-loss at Rs 475.”]  [/caption]

Long positions may be considered at current levels and on weakness, with a stop-loss at Rs 475, for a target of Rs 540. A breakout past Rs 540 could trigger a rally to the major resistance at Rs 565.

(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.)