Time to go short? Risk reward is attractive to create short positions on Nifty

Risk-reward ratio at this level is quite attractive to create short positions, and on the downside, 10,417-10,300 levels will be the targets to watch out for.

 

The Nifty, in the week gone by, witnessed sharp swings in both the directions and ultimately posted a third consecutive weekly positive close. The detailed structure i.e. the daily chart shows that the price action over these three weeks is showing the characteristic of a pullback.

This means that the move is unlikely to develop into a larger rally. A higher time frame, i.e. the monthly chart reveals that the Nifty formed a Doji pattern for the month of May. A Doji is a sign of exhaustion in the market.

Thus, we are likely to witness a correction unless high of the Doji pattern i.e. 10,929 gets taken out. The risk-reward ratio at this level is quite attractive to create short positions. On the downside, 10,417-10,300 will be the targets to watch out for.

The market breadth has been weak for quite some time. A number of stocks, especially from the broader market, are in a downtrend from short term as well as long-term perspective.

One should definitely stay away from these stocks and those who are still holding on to these tumblers should be looking to get rid of them.

There is a huge divergence between the Nifty and the mid and small cap indices. The Nifty is still hanging on above its crucial short term and medium term moving averages whereas the mid & small cap indices are way below the respective averages.

They have even breached their March lows. Clearly, there is a weakness in this space. In terms of wave structure, these indices are forming a complex correction and the bounce over the last couple of sessions is a part of the larger decline. Thus, one should use this bounce as an opportunity to exit.

Positional calls which could give handsome returns to investors in the next 1 month?

ICICI Bank Fut: Sell| Stop loss: Rs 302 | Target Rs 255| Return 11.4%

Ashok Leyland Fut: Sell| Stop loss: Rs 152| Target Rs 132| Return 8.9%

Mindtree: Buy| Stop loss: Rs 982| Target: Rs 1,120| Return 9%

MORE WILL UPDATE SOON!!