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| The markets continued to make net gains despite increasing volatility. The Sensex closed at 4930.53 points for a net gain of 3.39 per cent. |
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| The Nifty was up 3.04 per cent at 1569.45 points. The Defty rose 2.91 per cent in a week when the dollar made a small recovery. |
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| Breadth remained poor - the ratio of advances to declines was negative for the second week in succession. The BSE 500 gained 2.29 per cent, which was less than the narrower pivotal indices. |
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| The put-call ratio was in the extremely overbought zone at 0.25. Volumes continued to be extremely high, though the trading interest was concentrated in big stocks and the FIIs remained net buyers. |
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| Momentum indicators like the RSI and ROC showed negative divergence by dipping as the indices rose. |
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| Outlook: Next week may begin with a correction. This could be a short-term move or even intra-day dips followed by recoveries within the same session. |
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| In this case, the indices will find support at Sensex 4730/Nifty 1505 and we may see volatile range trading between 4750-4950/1500-1580. |
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| A more serious correction could see prices fall to a first Fibonacci support at 4480/1425 (calculated from the late April bottom of 2905/920 to the current peak levels). |
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| An immediate rise past the current levels is the least likely of possibilities. It's difficult to make upside target projections from the current chart patterns. |
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| Rationale: The series of negative divergences and a narrowing nature of trading suggest the high probability of a correction or range-trading. We have seen this pattern before in the last six months. |
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| Breadth and momentum indicators have weakened and showed negative divergence, with the put-call ratio rising into the mid 20s. There has then been a short, sharp correction followed by a surge with renewed force. |
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| Counter-view: In the past six months, every time the market has looked weak, the FIIs and Indian operators have brought in fresh funds and turned the situation around. This could happen again. |
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| Even if there's weakness next week, the first Fibonacci level of 4480/1425 would have to be broken for bulls to be disheartened. That is, a major trend reversal would only be confirmed if the markets had already fallen by 8 per cent or more from current levels. |
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| We would have reason to suspect such a possibility only if the markets fell more than 200 Sensex points - anything less than that could merely be short-term volatility. |
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| Bulls and bears: Three main sectors appeared to be bullish though the expectation of Q2 results is driving stock-specific investment. |
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| Banks, especially PSU banks such as Andhra Bank, Bank of India, Corporation Bank, HDFC Bank, SBI and Union Bank, saw massive investment interest. |
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| Several big software companies saw buying including Digital, Hughes Software, HCL Tech, Satyam and Wipro. The third sector, which seems to have a bullish outlook, is selective cement/construction companies - ACC, L&T and Grasim led the charge here. |
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| Other highly bullish stocks included BASF, Bhel, Crisil, IDBI, LML, RIL, Sail, Sterlite, Sun Pharma, Tata Power and Trent. Market operators seem to be pessimistic about both SCI and Nalco since the stocks got hammered. |
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| MICRO TECHNICALS |
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| TRENT |
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| Current Price: 240 |
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| Target Price: 260 |
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| The stock has made a breakout from a promising chart formation and done so on high volumes. It has target projections in the 270 range. |
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| However, there is a huge resistance at around 260 levels so, that is a more conservative target. Go long and keep a stop around 232. |
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| The stock could take perhaps 10 sessions to achieve projection so be prepared for a slightly longer holding period. |
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| BASF |
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| Current Price: 158 |
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| Target Price: 170 |
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| The stock has seen a sharp rise along with volume expansion. It has just completed a breakout from a saucer formation with a flat bottom. |
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| The upside targets should be in the range of 170-175. There is an element of risk since the breakout has come very fast and reliable support isn't available close to the current price. Keep a stop at 151. |
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| BHEL |
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| Current Price: 457 |
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| Target Price: Not Applicable |
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| The stock has just moved to a new high and done so on good volumes. It is not possible to calculate or project a likely target because the chart patterns offer no obvious clues and the previous target projection of 450 has already been exceeded. |
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| However, the stock looks worth going long. Keep a stop at 450 and go long. |
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| L&T |
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| Current Price: 400 |
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| Target Price: 410 |
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| The stock has just lifted out of a trading range. It has a minimum target projection of 410 and likely targets in the range of 450-plus. |
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| It may take several weeks to achieve the 440-plus mark. Try averaging up. Keep a stop at 390, go long and book partial profits at 410 to bring down cost of acquisition. |
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| UNION BANK |
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| Current Price: 52.75 |
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| Target Price: 60 |
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| The stock has broken out of a bullish saucer formation with a spiked bottom. This has a reliable target projection till around 60 levels. Volumes have expanded along with the break in a confirmatory signal. Keep a stop at 49 and be prepared to hold for around 10 sessions rather than the usual 5. |
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| (The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.) |
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