The Nifty index moved in line with expectations and tested the support zone of 5,250-5,260 mentioned in the week before. The market sentiment was spooked by Infosys’ first quarter earnings announced on Thursday. The Nifty opened with a huge gap-down on Thursday and failed to recover thereafter.
The short-term outlook would remain bearish as long as the index trades below the upper end of the gap at 5,300. As highlighted in the chart, the down-sloping blue “Reaction line” has acted as a trend barrier and the index has to clear this line before entertaining thoughts of a further upside potential.
Until 5,300 is taken out, there would be a strong case for a slide to the immediate support at the 5,130-5,160 range. Investors may refrain from committing fresh funds into equities until there is sign of a resumption of the uptrend.
Those already holding long positions may tighten stop-loss levels as volatility could perk-up as we head into the corporate earnings season. Reduce the position size as higher volatility would warrant relatively wider stops than usual.
CNX Bank Index (10,594.45): The index fell 100 points short of the target of 10,880 mentioned last week. After touching a high of 10,782 on Wednesday, the index ruled weak in the remaining two trading sessions. In the attached daily chart, it is apparent that the price has moved in sync with the red set of lines.
The index has almost met its upside expectations and there is a case for a short-term consolidation or downward correction. As long as the index trades below the 11,300-mark, there would be a case for a test of the support zone at 10,100-10,200.
Investors may pare exposures in the banking sector, or at least tighten stops, to protect unrealised profits and await evidence of strength before committing further funds.
USD/INR (Rs 55.20): The US dollar moved in line with expectations and almost reached the target of Rs 56.30-56.50 mentioned last week. The failure to move past the hurdle at Rs 56.30 is a cause of concern for the greenback.
The US dollar is now in the middle of its range and a move past Rs 56.85 or a fall below Rs 54.10 would set the tone for the next big move. Until then, range-bound and volatile action appears likely.
IDFC (Rs 137.40): The stock, featured earlier in this column on 9 June, has almost hit the then mentioned target of Rs 145. The price action in the past few days indicates that the stock is struggling to make progress beyond the key resistance at Rs 145. See chart here.
The short-term outlook is bearish and those holding long positions may either take profits or tighten stop-loss. Aggressive traders may consider short positions on a rally, with a stop-loss at Rs 145, for a target of Rs 127.
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