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Data Jun 29, 2013

Nifty has run up too quickly; so don’t chase momentum

Special to Firstpost

CNX Nifty (5,842.20): The index closed on a distinctly positive note on Friday, courtesy the positive global cues and the better-than-expected current account deficit for the fourth quarter of the previous fiscal. The rally in the last couple of trading sessions reinforces the medium-term bullish view portrayed in the last couple of weeks.

The index has to fall below the major swing low at 5,477 to indicate a reversal of the medium-term positive outlook. From a short-term perspective, the index has probably run up too much and too fast. It makes little sense to chase price and buy at prevailing levels.

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Any downward correction may be used to build long positions in the Nifty as well as fundamentally sound large-cap names from the software and banking sectors.

Any downward correction may be used to build long positions in the Nifty as well as fundamentally sound large-cap names from the software and banking sectors.

As highlighted in the attached above chart, the index has bounced off a key support level in the weekly chart. This support has worked like a charm on earlier occasions and the reversal off this line this week is a positive sign.

The US dollar too has faltered near key resistance at the Rs 61-mark. There is a marginal upside for the dollar from prevailing levels. A fall below the recent swing low of Rs 57.40 would indicate a reversal of the recent uptrend in the dollar.

Bank Index (11,617.25): There is a bit of divergent price action between the Nifty and the Bank Index. While the Nifty filled the open gap formed on 20 June, the Bank index is yet to do so. But, the medium-term outlook remains bullish and a rally to 12,400 remains the favoured view.

A fall below the recent swing low at 10,888 would signal a reversal of the bullish trend. Any downward correction in forthcoming weeks would present a low-risk buying opportunity with a stop-loss below the swing low of 10,888.

HDFC Ltd (Rs 872.90): The stock has been in a recovery mode after having hit the crucial support in the Rs 800-810 range. The sharp bounce off the support level is a sign that buyers are active. The short-term trend is bullish and a rally to Rs 945 appears likely.

Chart

Chart

Investors may buy the stock on weakness, with a stop-loss at Rs798, for an initial target of Rs 945. The uptrend would gain momentum on a breakout past Rs 945 and the stock could then rally to the major resistance at Rs 980.

Idea Cellular (Rs 141.40): The stock has been in a consolidation mode in the past few days. The consolidation has been happening at a crucial support level of Rs 133-136 range, which is a positive sign. The support is holding as of now and the minor recovery witnessed last Friday is a sign that the stock could edge higher in the short-term.

Long positions may be considered with a stop-loss at Rs 133 for a target of Rs 159. A breakout past Rs 159 will strengthen the bullish case scenario and the stock could then target the major resistance at Rs 169.

(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.)


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