A breakout will result in higher volume and volatility with a 200-250 point swing in the direction of the trend.
A quiet week ended with the indices down marginally after several sessions of range-trading. The Nifty closed at 2,843 points for a loss of 1.1 percent, while the Sensex was down 1.3 per cent at 9,300 points. The Defty lost only 0.5 per cent as the rupee strengthened.
Breadth signals were poor. Volumes have diminished alarmingly and the ratio of advances to declines remains negative. There is also a clear focus on the largest pivotals with the Junior declining 2.2 per cent and the Midcaps 50 dropping 2.8 per cent. The FIIs were net sellers to a lesser extent while Indian institutions sold consistently.
<B>Outlook:</B> The market has been stuck in a tight range between 2,750-2,850 for several sessions. It could be ready for a breakout. If it closes outside this range, there could be a move of around 200-250 points in the direction of the trend. Either way, a breakout will result in higher volume and volatility. The odds may be mildly in favour of an uptrend.
<B>Rationale:</B> Normally we would expect the market to have fallen further this week, given poor volumes and weak advance to decline ratios. But the support at 2,750 held. Many Nifty stocks appear to have made stable bottoming formations and then recovered. The medium-term formations suggest a continuation pattern with the index staying above 2,750.
<B>Counter-view:<B> Judging the likely direction of a breakout from a range is always difficult. There are plenty of bearish signals as well. A downside breakout is not unlikely. What is very unlikely is a continuation of the range trading pattern.
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<B>Bulls & bears:</B> Traders should focus on the top 30-50 stocks in terms of volume since almost all the action will be concentrated in these. In these counters, the mood seems bullish. The recurrent chart pattern is that of bottoming formations followed by a bounce.
Key bullish sectors could be banks and financials, metals, energy stocks and real estate. IT is likely to remain neutral or be somewhat bearish if the rupee is stable or appreciates further. Among financials, Reliance Capital, ICICI Bank and Canara Bank could be outperformers.
Among metals, it’s mainly iron and steel stocks such as Sesa Goa, Jindal Steel, Sail and Tata Steel. In real estate, the bullish list includes Brigade, Parsvnath and Purvankara with DLF also resting on useful support. Besides these, there could be scattered winners such as GE Shipping, Grasim, GMR Infra, ITC, IVRCL, Orbit and Ranbaxy.
<B><font color="#990000">MICRO TECHNICALS</font></B>
<B>GE SHIPPING</B><BR>
<B>Current Price:</B> Rs 209<BR>
<B>Target Price:</B> Rs 230<BR>
The stock has seen a sharp rise in volumes coupled to a strong uptrend starting off support at Rs 150. It has the potential to reach Rs 230 if the trend is maintained. Keep a stop at Rs 200 and go long.
<B>GRASIM </B><BR>
<B>Current Price:</B> Rs 1,403<BR>
<B>Target Price:</B> Rs 1,550<BR>
The stock bottomed at below Rs 1,150 some 10 sessions ago and since then its made a spectacular recovery.A breakout occurred when it cleared resistance at Rs 1,350, setting up a bullish formation with a target of Rs 1,550. Keep a stop at Rs 1,380 and go long.
<B>PARSVNATH</B><BR>
<B>Current Price:</B> Rs 41<BR>
<B>Target Price:</B> Rs 50<BR>
The stock has stayed above support in the Rs 35- Rs 37 zone and it saw a volume explosion on Friday that triggered a sharp rise. It has the potential to test resistance at Rs 52- Rs 53. Keep a stop at Rs 39 and go long. Cover above Rs 50.
<B>SESA GOA</B><BR>
<B>Current Price:</B> Rs 99<BR>
<B>Target Price:</B> Rs 106<BR>
The stock has climbed from 65 in the last 10 sessions on higher volumes. It completed a breakout on Friday. It should now have a target of between Rs 106-Rs 110 and maybe more if the volumes remain good. Keep a stop at Rs 95 and go long.
<B>ITC </B><BR>
<B>Current Price:</B> Rs 182.5<BR>
<B>Target Price:</B> Rs 195<BR>
The stock is testing stiff resistance near the current zone. If it closes above 185, the bullish breakout will have a minimum target of Rs 195. Keep a stop at Rs 178 and go long. If Rs 195 is broken, there could be a target of Rs 215. Book partial profits above Rs 195 and maintain one-third of the position if you are optimistic.