Nifty in short-term downtrend, wait for strength to emerge; check trades to make

While we remain open to further pullback rallies in the very near term, we must remember that the intermediate trend remains down. The bears would gain more control once the recent intermediate low of 15735 is broken.

May 26, 2022 08:24 IST

Nifty in short-term downtrend.

By Subash Gangadharan

The daily timeframe of Nifty indicates that index has made a double bottom around the 15735 levels and rallied sharply last Friday. Nifty has however failed to convincingly cross the recent swing high of 16400 and is showing tiredness and has corrected in the last three sessions. Many stocks are also correcting and failing to hold on to their recent gains. Combined with the negative market breadth, this is a sign of weakness and caution is therefore warranted.

While we remain open to further pullback rallies in the very near term, we must remember that the intermediate trend remains down. The bears would gain more control once the recent intermediate low of 15735 is broken. Traders should wait for strength to emerge before going aggressively long.

Buy Balkrishna Industries

Balkrishna Industries has shown relative strength this week. While the Nifty index has lost 1.43% this week, Balkrishna has gained 1.74% over the same time period. In the process, the stock has also broken out of its recent trading range on the back of above-average volumes.

Zooming into the daily chart, we can observe that the stock trades above the 20 day SMA. Daily momentum indicators like the 14-day RSI too are in rising mode and not overbought, which augurs well for the short term uptrend to continue.

We, therefore, believe the stock has the potential to move higher and take out its previous intermediate highs in the coming weeks. We recommend a buy between the 2140-2160 levels. CMP is 2150. Stop loss is at 2040 while target is at 2300.

Sell RBL Bank

RBL Bank is in an intermediate downtrend as it recently broke the support of 155 and has been moving lower in the last few weeks. Last week, the stock reacted from close to the 50 day SMA. This indicates that the downtrend looks set to continue.

Technical indicators are giving negative signals as the stock is now trading below the 20 day and 50 day SMA. Momentum readings like the 14-week RSI are in decline mode and not oversold, which implies potential for more downsides.

We, therefore, expect the stock to correct further in the coming sessions. Sell between the 105-109 levels. CMP is 107.55. Stop loss is at 117 while the downside target is at 90.

(Subash Gangadharan is a Senior Technical and Derivative Analyst at HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)