Nifty has witnessed a sharp correction from the levels of 12,000 on expected lines. It has declined 3 percent from the recent high.
The outperforming sectors like Pharma and IT started the corrective action, amid profit-booking at the start of the week, followed by banking and other sectors.
Mid-caps and small-caps continued to underperform the broader markets and failed to cross the long-term moving averages.
We believe Nifty will find support near its band of short-term averages of 11,430-11,480 and also 61.8 percent retracement of the recent up move from 10,800 to 12000.
On the higher side, the resistance levels would continue to be in the range of 12,050-12,100 levels.
India VIX has gained 8 percent to close at 22 levels as volatility has spiked due to second-quarter results season and global events.
Bank Nifty retraced sharply from its 200-day average on a closing basis, witnessing a sharp selloff from the recent highs of 24,100.
On the downside, multiple supports are placed at 22,300-22,500 levels and we believe Bank Nifty will outperform other sectors from here.
Here are two buy and one sell calls for the next 3-4 weeks:
City Union Bank | Buy | LTP: Rs 142 | Target price: Rs 168 | Stop loss: Rs 125 | Upside: 18%
The stock has been trading in an inside range for the last three months after a sharp breakout on the higher side.
The crossover of its short and medium-term averages confirms a positive breakout, in line with the sector.
Daily RSI is trading above 50 levels, indicating a bullish setup for the stock.
Cummins India | Buy | LTP: Rs 443.40 | Target price: Rs 495 | Stop loss: Rs 418 | Upside: 12%
The overall chart structure on the daily and weekly timeframe looks promising.
Multiple support levels in the range of Rs 415-425 levels would be protected and it offers a good risk-reward ratio from the current levels.
The counter is likely to outperform the benchmark index which is visible on the Relative Strength indicator on a weekly interval.
The stock has failed to cross its 200-week average at Rs 660 on multiple counts, witnessing a reversal in the last 2 months.
Breakdown of its short-term averages on daily charts and strong outperformance over the past few months would call for corrective action from the current levels.
Trend reversal and RSI turning downwards from the top could witness a sharp correction to test the lower range.
(The author is Senior Research Analyst at Reliance Securities)
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