Outlook for Nifty to remain bearish below 17,490, says Subash Gangadharan

The technical & derivative analyst from HDFC Securities recommends buying SAIL and and Hindalco

Over the last few weeks, the Nifty has been in correction mode. The downtrend was confirmed when the support of 17,613 was broken.

On the daily chart, we see that Nifty remains in a downtrend despite the bounces seen recently. The index continues to make lower tops and lower bottoms for the last few weeks. The 20-day SMA also continues to trade below 50-day SMA, indicating a negative moving average crossover. Weekly momentum readings like the 14-week RSI are in decline mode.

While we remain open to pullback rallies, we expect the Nifty to eventually move lower in the coming sessions. A larger correction is likely once the 16,782 support is broken. The current downtrend would however reverse if the Nifty manages to cross the previous swing highs of 17,490.

The below picks are for the next 15-26 trading sessions:

Buy Hindalco

Hindalco has shown relative strength this week. While the Nifty index has shed 0.1 per cent this week, Hindalco has gained a healthy 4.42 per cent over the same time period. In the process, the stock has also broken out of its recent trading range on the back of healthy volumes.

Technical indicators are giving positive signals as the stock trades above the 20-day SMA. Daily momentum indicators like the 14-day RSI too have bounced back and are in rising mode now, which augurs well for the uptrend to continue.

With the intermediate technical setup looking positive, we believe the stock has the potential to move higher and take out its previous intermediate highs in the coming weeks and therefore recommend a buy between the Rs 440-446 levels. CMP is Rs 443.4. Stop loss is at Rs 420 while targets are at Rs 500.

Buy SAIL

SAIL is in an intermediate uptrend as it continues to make higher tops and higher bottoms over the last several months. After correcting recently and finding support at the Rs 99 levels, the stock bounced back this week on the back of decent volumes.

Technical indicators are giving positive signals as the stock trades above the 200-day EMA. Daily momentum indicators like the 14-day RSI too have bounced back and are in rising mode now, which augurs well for the uptrend to continue.

With the intermediate technical setup looking positive, we believe the stock has the potential to move higher in the coming weeks and therefore recommend a buy between the Rs 106-110 levels. CMP is Rs 108.5. Stop loss is at Rs 102 while targets are at Rs 122.

Subash Gangadharan, Senior Technical and Derivative Analyst, HDFC Securities.