Flipping A Failed Long NBFC Position

JC Parets
May 27, 2020

In late April we highlighted the relative weakness in the Nifty Financial Services Index and highlighted several individual stocks that stood out as leaders and laggards.

One of our six charts to watch this week is the Nifty Bank Index, so today we want to look at two stocks showing symptoms of the underlying problem in the sector.

First, let's start with Bajaj Finance Ltd. which we looked at last week as a potential long trade. In our post last month we outlined that if support near 1930 failed then further downside towards 1,575 was likely. Last week, we saw improvement in stocks globally and thought we may see rotation into weaker stocks like Bajaj Finance.

Click on chart to enlarge view. 

Instead, the bullish momentum divergence we saw as prices approached support at 1,900 failed to generate any bounce and the stock sliced through support to new lows. When a pattern that's typically bullish fails to generate a bullish outcome, that's telling us there are larger forces at work and we need to get out of the way. So instead, we are flipping short against 1,930 and looking for further downside towards 1,575.

Here's the relative chart approaching new lows versus the sector.

Bajaj Finserv Ltd. remains at risk as well. In our post in April we outlined the fact that it was not participating in the bounce and was stuck below former support/resistance near 4,950. We're now seeing downside follow-through here, so any strength towards resistance can be faded with a downside target of 3,450.

The relative chart remains broken as well. Much lower prices ahead.

The Banks and Financial Services Indices remain broken. The fact that these bullish momentum divergences failed to provide any sort of bounce is a sign that the bias is still very much to the downside.

We'll be watching to see how prices react to their next potential support levels. As the largest area of the market, we're unlikely to see any traction in the major indices until Financials/Banks stabilize.

Not wanting to short stocks? Check out some of our long ideas here.

Thanks for reading and please let us know if you have any questions.

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Allstarcharts Team

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