Awaiting another trigger

MACRO TECHNICALS

The short-term trend may be rising, given the recovery on Friday after five bearish sessions.

The reaction continued through the week. The Nifty dropped to an intra-day low of 2077 points on Friday before staging a recovery to close at 2109.15 for a week-on-week loss of 2.08 per cent.

The Sensex hit a low of 6595 before closing at 6700.34 points for a w-o-w loss of 2.24 per cent. The Defty was down 2.26 per cent on the week - the rupee lost a little ground against the dollar.

Breadth signals remained poor at the weekend. Declines outnumbered advances by far and the BSE 500 was down 2.4 per cent by the weekend. Volumes were generally low except on Monday (when prices fell) and Friday (when there was a recovery).

Outlook: The market appears to be waiting for another trigger. It is likely to continue trading between Nifty 2075-2150 (Sensex 6700-6900) until such a trigger is forthcoming.

Technically speaking, the long-term trend is up but the intermediate trend is weak. The short-term trend may be rising, given the recovery on Friday after five successive bearish sessions. We would expect prices to rise at least until the Nifty 2150 barrier is hit.

Rationale: Most short-term technical indicators seem oversold. There's room for the market to rise another 50 Nifty points without a breakout from the trading range.

The budget debate continues - the Rs 10,000 withdrawal tax may be reconsidered and maybe the fringe benefit tax as well. Decisions on these measures either way would help operators make up their minds.

Counter-view: Prices held much at the last reliable level of support on Friday before staging a recovery. Apart from adverse decisions on the budget measures mentioned above, nervousness about global oil prices could force prices below that support level. In that case, all bets on the post-Budget bull market would prove premature.

Bulls and bears: Most stocks will continue to move in line with the market. However, banks such as Andhra Bank and ICICI could provide a hedge against a sharp decline since this sector continues to look independently bullish. There is some interest in healthcare stocks such as Apollo Hopsitals and Max India.

Apart from these two sectors, selective buying seems evident in Asian Paints, Century Textiles, CMC, Colgate, ConCor, GE Shipping, Maruti, ONGC, Tata Motors, Ranbaxy, Reliance Industries, Sail and TCS.

MICRO TECHNICALS

CONCOR
Current price: 855
Target price: 900, 1000

The stock has performed quite well while registering decent volumes given the lack of float. A breakout up past 870 would carry it to 900 while a breakout past 900 would probably carry it past the 1000 mark.

Concor tends to have high intra-day ranges (between 820-860 at the moment) due to its illiquidity and so, setting stops is difficult. Wait for a close above 870 and then go long.

GE SHIPPING
Current price: 167
Target price: 180

The stock has just completed a three-day pattern that suggest short-term bullishness at least. It will probably run into some resistance at 172 but it could overcome that and hit 180. There's good support at 162 so GES might make a good intra-day trade. Go long with a stop at 162 and book profits at 180.

ICICI BANKING CORP
Current price: 413
Target price: 435

The stock has made a classic bullish breakout above resistance at 400 accompanied by strong volume expansion. It ought to have a minimum target of about 435 and it could move quite a bit further given the bullish long-term trend it has displayed since last June.

ONGC
Current price: 911
Target price: 925

The stock always tends to outperform the market when global crude prices rise. It showed a fairly strong trend on Friday. It has resistance at 925 but it could break that if volumes pick up. Keep a stop at 900 and go long.

MARUTI
Current price: 448
Target price: 470, 490

The stock showed a strong uptrend on Friday and it also had a volume expansion. There is a resistance just above the current levels. But if that is broken, MUL is likely to rise till around the 470 level at least and it may move till 490. Keep a stop at 435.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)

Williams' %R
CLASSROOM

Williams' %R is a momentum indicator and identifies overbought or oversold markets. It is plotted on an inverted zero to 100 scale. The indicator has proven very useful for anticipating market reversals.

This oscillator - a version of the stochastics oscillator - was developed by Larry Williams. It is mainly used to determine market entry and exit points. A Williams %R reading over 80 per cent usually indicates a stock is oversold, while readings below 20 per cent suggest a stock is overbought.

Calculation of Williams' %R is similar to that of the stochastic oscillator: [(Highest high in 'n' periods - current day's close)/(highest high in 'n' periods - lowest low in 'n' periods)] X -100.

Williams said that readings below 95 per cent give a buy indication during bull markets and a reading above 10 per cent gives a sell signal during bear markets. The %R index does not seem to work if acted on buy signals during a bear market.

Thus arises the need to emphasise and locate the dominant trend - a bull or bear trend. Like other momentum indicators, Williams' %R is not very useful in a sideways market, or trading range. The market needs to be trending up or down for the signals to be reliable.

The indications can be largely based on the use of the following two signals (once again notice that the signal is reliant on the direction of the underlying long-term trend): Buy when %R hits 90 per cent to 100 per cent and the trend is up. Sell when %R hits 10 per cent to zero per cent and the trend is down.

An interesting phenomena of the %R indicator is its ability to anticipate a reversal in the underlying security's price. The indicator almost always forms a peak and turns down a few days before the security's price peaks and turns down. Likewise, %R usually creates a trough and turns up a few days before the security's price turns up.

Some traders use readings below 80 per cent to indicate oversold markets and readings above 20 per cent to indicate overbought markets. These levels can also be used as early warning signals.