Nifty 50 index, after a sharp rally from its 8,000 levels in early June, surged close to 8900 levels and recently observed some profit booking and tested the crucial support area of 8,700. The index has an immediate resistance area at level 8,750-8,800 which will be a curial hurdle to be crossed immediately. Recently, the emergence of multiple bearish candles near this zone on the daily charts halted the advance and these entire patterns indicate exhaustion, which is also confirmed by the negative divergence in momentum indicators, which indicates continuation range bound action or a short-term pause in the current uptrend. Overall, the market is in a bull structure trend and dips, if any, are an opportunity to initiate long positions at lower levels. The current formation would add bullish momentum only if the Nifty manages to close above 8,820 level.
The correction in the banking and IT sector was the reason for the underperformance of the index. Most of these stocks have entered into the oversold zone and are due for a bounce. However, there is an insufficient evidence for any top unless the Bank index breaches the resistance of 19,500 level.
The PSU banks, and particularly Union Bank, Bank of India and Allahabad Bank have confirmed a short-term trend reversal and resumption of the original uptrend. The stock from midcap like JK Tyers, NCC are in a long-term bull pattern structure and maintain an upside target of 15 per cent from current levels.
Pidilite has been in a strong uptrend and has an immediate support at the 700 levels on the downside. The overall structure remains bullish which indicates a possible resumption of the uptrend. The RSI has formed a positive divergence which hints for a rally in the near term. Stocks can touch Rs 780-820 in the medium term.
Bharat Heavy Electricals Ltd, or BHEL, after a sharp rise has consolidated above the long term 100 and 200-SMA which also provided support to the current pattern which is a bullish signal. The stock is in a strong uptrend and any dips should used as a buying opportunity. The RSI is in bullish mode and is currently trading above the 50 levels. The prices have consolidated near its long-term averages and the rising trend line and can expect price targets of 165-175 in near term
(The author is Manav Chopra, CMT, head technical analyst, Monarch Networth Capital)