Banks may spoil Nifty party; JP Associates a low-risk buy

Special to Firstpost

CNX Nifty (5,867.90): The index did a whole lot of nothing during the just concluded week. After a sharp rally the week before, the Nifty appears to have taken a breather this week. While the medium-term bullish trend remains intact, the index is at crucial level and has to clear the key resistance at 5,940-5,970 to strengthen the case for a resumption of the medium-term uptrend.

The swing low at 5,477 remains the key reference point for the bullish camp. From a short-term perspective, as long as the Nifty trades above 5,550, there would be a strong case for a breakout past the resistance at 5,970.

[caption id="attachment_934065" align="alignleft" width="380"] The only cause for concern, however, is the disparate movement between the Nifty and the Bank Index.[/caption]

The only cause for concern, however, is the disparate movement between the Nifty and the Bank Index. The bullishness in the Nifty is neither reflected nor supported by the Bank Index. While the Nifty has edged past its minor swing high at 5,863, the Bank Index is still hovering below that corresponding level.

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Bank Index (11,434.30): As highlighted last week and as discussed above, the action in the Bank Index is not in sync with the Nifty. The index has to quickly move past the recent swing high at 11,992 to resonate with the relatively more bullish undertone in the Nifty. Else, the Bank Index could play spoilsport to the recovery process in the Nifty.

A fall below 10,888 would be a sign that the index is in a downtrend and could result in a push down to major support at 10,000. Given this backdrop, it makes sense to tread with caution as far the banking sector stocks are concerned. Those holding long positions may have a stop loss at 10,800.

ITC (Rs 342.75): After a minor downward correction, the recent price action suggests that the stock has resumed its medium-term uptrend. The short-term trend is bullish and a rally to the immediate resistance at Rs 370 appears likely.

Investors may use any weakness in ITC to buy the stock with a stop loss at Rs 310 and a target of Rs 370. The stock could seek further highs if the initial resistance at Rs 370 is taken out. The stock could then rally to the major resistance at Rs 390.

Jaiprakash Associates (Rs 54.55): The stock has been in a sharp fall for several weeks now. The fall was arrested at the key support at Rs 48-50 zone on 25 June. The subsequent price action suggests that there is buying interest near this support zone.

[caption id="attachment_934067" align="alignleft" width="620"] Chart[/caption]

The stock presents a relatively low-risk buying opportunity. Long positions may be considered with a stop loss at Rs 49.50 and target of Rs 61. A breakout past Rs 61 could lend momentum to the uptrend and could propel the stock to the major resistance at Rs 70.

(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.)