Intermediate trend may have reversed.
The market corrected downwards with the Nifty closing at 4,313 points for the loss of 5.88 per cent after hitting a low of 4,206 on Friday. The Sensex closed at 14,522 points for the loss of 4.7 per cent. The Defty was down 6.92 per cent as the rupee lost ground.
Breadth indicators were poor. Volumes remained reasonable but advances were far outnumbered by declines. The BSE 500 lost 4.63 per cent while the Midcaps 50 lost 4.8 per cent. FIIs were heavy sellers, which was one reason why the rupee dropped (higher crude prices were another). Domestic institutions were, however, buyers.
Outlook: The Nifty has reasonable support at current levels and strong support at 4,200. Volatility is likely to stay very high through settlement week with average daily swings of 120-150 points. There are some signs that short-covering could maintain the intermediate uptrend through settlement. A close below 4,200 could trigger a slide till 4,000 level, though there is some support at 4,100.
Rationale: There were some signs of a turnaround on Friday. The short-term trend was down all week. It is possible, even likely, that the intermediate uptrend has reversed or is on its last legs after 14 weeks. Trader expectations are weak at this point and FIIs are selling. However, short-covering through the settlement could push the market up temporarily till 4,450.
Counter-view: On March 6, the market rebounded from a low of 2,539. It hit a 2009 high of 4,693 on June 12. There is powerful resistance at 4,650-4,700 levels. A Fibonacci retraction of 38 per cent of the entire upmove would imply a slide till the 3,875 level.
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Given the length of the rally, we would expect the intermediate downtrend to last for around 6 weeks. Despite settlement, next week could see net losses, especially on Friday.
Bulls & Bears: It was a strongly bearish week with recovery coming only on Friday afternoon. However, banks did quite well and the heavyweight Bank Nifty's 2 per cent rise kept the broader market from going absolutely kaput. The CNXIT also did reasonably well, losing only 1 per cent. This was probably due to the rupee's weakness.
There were huge sell-offs in the metals sector, in engineering and construction stocks, and across real estate, where stocks got hammered without exceptions. Energy stocks and refiners also came under pressure. If it hadn't been for Friday's rally, a host of biggies such as Tata Steel, L&T, Suzlon, DLF and HDIL would have been down over 15 per cent week-on-week.
MICRO TECHNICALS
Cairn Energy
Current Price: Rs 234.00
Target Price: Rs 215.00
The stock has seen heavy selling since early June when it was trading at Rs 265. It has a likely downside till around the Rs 215 level with some support at about Rs 225. Keep a stop at Rs 240 and go short. Start booking profits below Rs 220.
India Bulls Real Estate
Current Price: Rs 198.70
Target Price: Rs 185.00
The stock is under heavy selling pressure. It has some support at Rs 185 and that would be the minimum downside. If it closes below Rs 183, it could slide till Rs 170. Keep a stop at Rs 203 and go short. Book profits at Rs 185. Consider renewing the short position if it closes below Rs 183.
GVK Power and Infra
Current Price: Rs 40.35
Target Price: Rs 45.00
The stock has reacted to support at Rs 37 and rallied on decent volumes. This looks like a bottoming formation. The potential upside on a bounce is around Rs 45-46. Keep a stop at Rs 38 and go long. Start booking profits above Rs 44.
Suzlon
Current Price: Rs 111.00
Target Price: Rs 102.00
The stock has bounced from a low of Rs 97. It continues to generate high volumes. The momentum looks weak and the pullback will hit resistance at Rs 112-115. On the next downturn, Rs 102 is the first reliable support and 98 is quite likely to be tested again. Keep a stop at Rs 113 and go short.
RNRL
Current Price: Rs 92.50
Target Price: Rs 101.00
The stock of RNRL has seen a sell off after a spike till Rs 108 on massive volumes. It has bounced from support at around Rs 87. There could be an upside till around Rs 100-101. Keep a stop at Rs 90 and go long. Start booking profits above Rs 98.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)