The market has been forming lower highs and lows, indicating bearishness
The market continued to slide in lacklustre trading. The Sensex closed the week at 2924.03 points, down 2.02 per cent. The Nifty was down by 1.74 per cent at 924.3 points while the Defty lost 1.70 per cent. The broad BSE 500 Index was down 1.05 per cent.
Volumes were low except on Thursday when derivative settlement day had its effect on stocks. The ratio of advances to declines was negative and the Put-Call ratio stayed in the oversold zone at around 0.6.
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Outlook: The market broke yet another significant resistance and it is still in a marked downtrend. It continued to register sequences of lower highs and lower lows. It's been this way since the Budget and after 7 weeks, the downtrend should be nearly mature.
However we would still expect either a further downtrend or alternatively, a period of range-trading. There is support around Nifty 915/Sensex 2900. If that support holds, trading will range between Nifty 915-940/Sensex 2900-3000. If the support is broken, the market would find support in the 850/2825 zone. Below that, we would be back to 1993 price-levels!
Rationale: There appear to be no sgnificant upside triggers. Most of the hot money has flowed out in the panic post-April 10. That restricts downside movements to an extent. However bargain hunting isn't evident. Nor do we have a clear bottoming formation yet.
Counter view: A Nifty close above 940 would be the first clear signal of a technical recovery. If it comes on good volumes, and better breadth, it would be distinctly hopeful. The market is definitely oversold so any recovery could move at least till 965/ 3050 or even more. There is a late April-early May Fibonacci signal that suggests a recovery is possible.
Bull and Bears: The movements tended to be extremely stock-specific this week. The only apparent sectoral trend was that PSUs like BPCL and BHEL got hammered. The bullish banking sector saw consolidation rather than advances.
However many index heavyweights showed signs of bottoming formations including Lever, Infosys, Reliance and Wipro. Some of the gainers included Aurobindo Pharma, Colgate, Exide HCL Info, HCL Tech, MRF, Nicholas, Satyam, Saw Pipes and TV 18. There's no obvious sectoral pattern to be seen there - this is strictly result-based as far as I can make out.
With the derivative market having just completed settlement, there is a case for buying June Nifty and selling May and July. July is at a large premium while June is at backwardation to May.
MICRO TECHNICALS
Exide
Current price: Rs 95
Target price: Rs 110
The stock appears to have undergone a massive positive re-rating. It jumped on Friday with a huge expansion in volumes. The formation has been mildly bullish for several months, however the stock is not generally very liquid.
It has completed a bullish saucer formation and is testing resistance in the Rs 95-100 range. If it closes above Rs 98, the stock should climb to at least Rs 110, which would be a two-year high. Go long, keep a stop at Rs 86.
Colgate
Current price: Rs 128.55
Target price: Rs 136
The stock has staged a solid recovery from lower levels. It has now performed a bullish saucer formation with reasonable volumes. The theoretical target of this formation could be around the Rs 136 level.
However there is massive resistance in the market beginning around Rs 133-134. Go Long, keep a stop at Rs 125, and book partial or complete profits at above Rs 133.
HCL Infosystems
Current price: Rs 101
Target price: Rs 108
The stock has shot up on high volumes presumably because of good results. It is likely to see a strong resistance at Rs 108 and selloffs at that level are probable. If it closes above Rs 108, it is likely to move ahead until the level of Rs 120. Go long with a stop at Rs 92. Book partial or complete profits at Rs 108.
Satyam
Current price: Rs 164
Target price: Rs 175
The stock has developed surprising strength with a clear bottoming formation. It could continue to consolidate between Rs 165-175 for a while. There is an intermediate target of Rs 195 but this could take several weeks or months to achieve.
Either accumulate for the long-term with a stop at Rs 150, or buy close to current prices to book profits above Rs 170. The May Future looks a good buy.
TV 18
Current price: Rs 64.85
Target price: Rs 72
The stock has completed a bullish inverted head and shoulder pattern with a fair amount of volume on the second shoulder formation. The short-term target for this pattern would be around Rs 73. There is resistance at Rs 68, which may hold up the move.
Keep a stop at Rs 59 and go long. If it closes above Rs 68, the formation has quite a lot of long-term potential. It could rise to around the Rs 80 mark in a few months.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated)