Ruchit Jain, Lead Research at 5paisa.com
Nifty started the day on a flat note, but right from the open it witnessed selling pressure. The Banking index tried to outperform and prevent downfall at the start, but the surprising RBI event in the later half led to a sharp correction across the markets on May 4.
Nifty not only breached its important supports, but it ended well in the red below 16,700 with a loss of over a couple of percent. Since last couple of weeks, Nifty was consolidating within a broad range of 16,825 -17,400. Our markets needed a breakout beyond the range for a directional move and on May 4 finally we witnessed a breakdown from the support end. This also marks a breakdown from a 'Bearish Flag' pattern in Nifty on the daily chart and which triggered a short term downtrend.
In derivative segment too, we saw formation of fresh short positions in Nifty as well as Bank Nifty. India VIX, too, surged and is hinting at higher volatility in the short term.
So looking at the charts and the data, we expect the Nifty to continue its downtrend in the near term and head lower towards 16,400 first. The above mentioned bearish pattern indicates a probable target around 16,125 which we would expect from a positional perspective.
On the flipside, the supports of 16,825 and 17,000 which were breached on Wednesday will act as a resistance on any pullbacks. Traders are advised to trade with a negative bias and look for shorting opportunities.
Here are two sell calls for near term:
Vedanta Futures: Sell | LTP: Rs 396.80 | Stop-Loss: Rs 410 | Target: Rs 383 | Return: 6 percent
After a sharp runup, the metal space has witnessed a trend reversal and stocks from this sector have been witnessing price-wise correction since last few days.
The price action on the daily chart of Vedanta in last few days has led to formation of a ‘Head and Shoulders’ pattern. This pattern, which is formed after a significant uptrend indicates a change in short term trend and hence, we expect some price correction in the stock in near term.
Hence, traders can look to sell Vedanta Futures in the range of Rs 397-400 for potential targets of Rs 383 and Rs 374 in next few days. The stop-loss for short positions can be placed above Rs 410.
Cholamandalam Investment Futures: Sell | LTP: Rs 716 | Stop-Loss: Rs 732 | Target: Rs 688 | Return: 4 percent
This stock has shown a relative outperformance to its peers in last few months. However, the recent price action has led for formation of a ‘Rising Wedge’ pattern which is usually seen at the end of an uptrend. This chart structure also indicates completion of a five wave impulsive upmove and hence, we expect a corrective phase in the stock in the near term.
Hence, traders can look to short Cholamandalam Investment futures in the range of Rs 716-720 for potential targets of Rs 700 and Rs 688. The stop-loss then should be placed above Rs 732.
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