Crucial support at 4,150

Intermediate correction may continue.

A thin settlement was followed by a technical recovery. The Nifty closed the week at 4,375, a rise of 1.4 per cent. The Sensex rose by 1.67 per cent, closing at 14,764 points. The Defty gained only 1 per cent as the rupee slid on FII selling.

FII sales of Rs 2,700 crore were matched by domestic institutional buying of about Rs 2,900 crore. Volumes declined perceptibly across both cash and derivatives segments. But breadth was decent enough with smaller stocks such as the Junior Nifty basket, the BSE 500 and the Midcaps-50---all outperforming the Nifty. This was because small traders and operators were quite active and bullish.

Outlook: The thin market and the fact that the Nifty dropped to 4,143 before recovering, suggests that an intermediate correction has begun. This implies that the market will drop into a pattern of lower lows and lower peaks. The key levels to watch would be 4,143 and 4,693. If the intermediate correction continues, expect a drop below 4,143. The peak at 4,693 is unlikely to be crossed.

Rationale: The intermediate downtrend started after the market peaked on June 12 at 4,693. During the downtrend, the top at 4,693 is unlikely to be tested. We would expect the market to continue correcting for another 4-6 weeks or so and to test support at around 3,875 which is the first Fibonacci retracement zone. In practical terms, there is heavy resistance above 4,450 and the market is not likely to travel much further north.

Counter-view: The Budget is around the corner. A good Budget could reverse the trend while a poor Budget would accentuate the bearishness. It is possible that the market will mark time within the range of 4,150-4,450 until the Budget. Daily volatility will stay high.

Bulls & Bears: If the pattern of FII selling holds (they have net sales of Rs 4,800 crore in the past 10 sessions), the rupee will stay weak. That could help IT stocks – the CNXIT has outperformed the Nifty in the past month. Bank shares also outperformed. There could be some speculative bullish action in other PSUs such as SCI and Concor.

As far as the bears are concerned, PSU refiners are being sold heavily in reaction to rising crude prices. Metal stocks have also seen corrections due to perceived global weakness. Realty shares also continue to look weak and unable to sustain current price levels. Sugar stocks on the other hand, may continue to move up.

MICRO TECHNICALS

HPCL
Current Price: Rs 302.50
Target Price: Rs 280.00

The stock is testing a key support at the current price. If it closes below Rs 298, it is likely to fall till around the Rs 280 level. Keep a stop at Rs 307 and go short. Add to the position below Rs 298. Book profits at Rs 280.

ACC
Current Price: Rs 799.00
Target Price: Rs 835.00

The stock has moved up from a low of Rs 730 just three sessions ago. It hit resistance at around Rs 815, which would be the minimum target. It could have the momentum to move till Rs 835 or even more. Keep a stop at Rs 790 and go long. Book 50 per cent profit at Rs 815.

SAIL
Current Price: Rs 151.50
Target Price: Rs 165.00

The stock has hit good support after correcting from above Rs 180. It is consolidating on excellent volumes. There is a potential upside till around Rs 165 with some resistance at Rs 160. Keep a stop at Rs 148 and go long. Cover at least 50 per cent of the position at Rs 160.

THERMAX
Current Price: Rs 411.50
Target Price: Rs 385.00

The stock is hitting strong resistance at Rs 410-415. It is likely to react till around the Rs 385 level. Keep a stop at Rs 415 and go short. Start covering below Rs 390. If the Rs 415 stop loss is broken, consider reversing and going long with a stop at Rs 410 and a target of Rs 445.

WIPRO
Current Price: Rs 384.00
Target Price: Rs 365.00

The stock has seen a fair amount of selling and reacted from a top of Rs 455 to a reasonable support. The intermediate correction may not have ended. It could react further till around the Rs 360 level. Keep a stop at Rs 390 and go short. Start covering below Rs 365.

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