Nifty is holding strong: Time to raise equity allocations
It's best not to worry about having missed the bus on the current stock rally. You can still enter after the next correction
Special to Firstpost
S&P CNX Nifty (5,564.30): The decisive breakout past the bullish trigger of 5,400 is a significant sign of strength for the Nifty. A look at the weekly chart above indicates that the index is headed towards the major resistance at 5,710. As long as the recent significant swing low at 4,530 is not breached, there would be a strong case for a rally to 5,710.
Though there is now a compelling case for increasing equity allocations in one's portfolio, it does not mean that the disposable surplus be ploughed into the market immediately at current levels.
[caption id="attachment_217759" align="alignleft" width="380" caption="Every market, irrespective of the underlying momentum behind the trend, does cool off and gets into a counter-trend correction."]
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Every market, irrespective of the underlying momentum behind the trend, does cool off and gets into a counter-trend correction. Investors may wait and use such corrections to increase equity allocation.
More from InvestingIt's too tempting to jump in at current levels, especially if there is an overwhelming thought of being left out. But regular readers of this column would not fret as a lot of stocks recommended in recent weeks have delivered handsome returns. The likes of Neyveli Lignite, Thermax, Arvind, Engineers India, Crompton Greaves, Rural Electrification and Opto Circuits come to mind readily.
For those who are still worried about having missed the bus, it would be worthwhile to jog the memory a bit and recall the price action after the sharp run-up witnessed in prior occasions.
Post the rally during the first half of 2006, the spike in late 2007 and, more recently, the one-sided move from September to November 2010, prices have encountered corrections that were equally sharp.
The immediate resistance for the Nifty is at 5,750 while the support is at 5,400. It is pertinent to note that buying or increasing equity allocation after a nice correction, say at 5,400 or lower, makes far more sense than chasing price and investing at 5,400 a couple of weeks ago.
Though one might argue that we are essentially investing at 5,400 on both occasions, I would rather buy post-correction as it is less risky. Chasing price would be a drain emotionally, when price gets into a swift correction. Not too many people are adept at exiting at the right price while dealing with a rally with strong momentum.
CNX Bank Index (11,074.90): The index reached within striking distance of the target price of 11,500 mentioned in the recent weeks. Any correction in this sector may be used to build long exposures as quite a few index heavyweights such as State Bank of India, Axis Bank, Yes Bank and HDFC Bank appear to have significant upside potential.
The index faces resistance at 11,500 while the 10,100-10,500 range would act as significant support.
Hindalco Industries (Rs 151.10): The stock has seen a sharp run-up in recent weeks and the price action in the past few days indicates that a short-term correction is in the offing. A fall to the short-term support at Rs 135 appears likely.
[caption id="attachment_217760" align="alignleft" width="620" caption="A fall below Rs 135 would trigger a slide to the major support at Rs 129."]
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Those already long may reduce exposures while the ones with speculative intent may consider short positions with a stop-loss at Rs 162. A fall below Rs 135 would trigger a slide to the major support at Rs 129.
Tata Power (Rs 118.65): The short-term outlook is bullish and a rally to the immediate resistance at Rs 130 appears likely. Long positions may be considered with a stop-loss at Rs 102, for a target of Rs 130.
The short-term uptrend would gain momentum on a breakout past Rs 130 and the stock could then rally to the major resistance at Rs 140.
(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.)
