A correction is likely after a seven-week uptrend from a low of 2,539 in early March.
The markets may have gone into a consolidation and correction pattern. The Nifty closed out a truncated week at 3,473.95 points for a small nominal loss. The Sensex was up 0.65 per cent at 11,403 points. The Defty was down 0.74 per cent as the rupee lost ground and dipped below the $50 mark.
Breadth signals were mixed. Declines slightly outnumbered advances. While FIIs remained net buyers, domestic institutions were net sellers. Volumes remained high but that is expected in a settlement week. Smaller stocks lost more ground than pivotals with the Nifty Junior, the Midcaps-50 and BSE 500 ending down.
Outlook: The market could range-trade next week or it could move lower. It swung between 3,350-3,517 in the last three sessions. It could continue a pattern of range-trading between these two levels. However, a correction is likely after an 7-week uptrend from a low of 2,539 in early March.
Rationale: There is massive resistance between 3,450-3,550. There is good support at 3,350 which is roughly where the simple 200 Day Moving Average is (the exponential 200 DMA is near 3,450).
Intermediate trends can last between 4-12 weeks and this seems to be maturing. A Fibonacci 38 per cent correction of the up-move could pull the market back till around 3,150. If there’s a larger retraction, the market would land in the 2,800-2,900 zone.
Counter-view: Despite the choppy short-term trend, the market registered a new 2009 high at 3,517. This could mean the uptrend is alive. If the market closes above 3,550, it could run up till around 3,650-3,700. Political uncertainty makes this seem unlikely.
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Bulls & Bears: The IT sector was the biggest gainer of last week with the CNXIT up by 4 per cent. In other industries, gains and losses were almost evenly distributed. A lot of heavyweight stocks displayed extraordinary volatility on very high volumes with alternating sessions of gains and losses. Banks and financials are likely to be the direction-setters for the entire market.
Last week, the BankNifty had very little net movement though it swung through a wide range. It’s results season so this pattern may continue through next week. However, election results and the formation of a new government towards the end of May would lead to a clarification of the trend.
In the near term, traders should focus strictly on the highest volume scrips in the derivatives segment. They should also be braced for extreme volatility with 10 per cent intra-day swings being the norm. This means keeping tight disciplined stops and a lot of margin in hand.
MICRO TECHNICALS
Idea cellular
Current Price: Rs 58
Target Price: Rs 68
The stock has cleared resistance at Rs 57 on enhanced volumes and it is now testing resistance at around Rs 60-61. It has a potential target of Rs 68-70 if it closes above Rs 61. Keep a stop at Rs 55 and go long. Book profits above Rs 65.
GMR Infra
Current Price: Rs 113
Target Price: Rs 100
The stock is reacting from recent highs in the region of Rs 123. It could slide till around the Rs 100-105 level before it hits reliable support. If it drops below Rs 100, the next support level is at Rs 90. Keep a stop at Rs 116 and go short.
MindTree
Current Price: Rs 305
Target Price: Rs 335
The stock has risen 25 per cent in the past five sessions on a large volume expansion. It's likely to test Rs 340 on an intra-day basis and may be able to close around the Rs 335 levels. Keep a stop at Rs 295 and go long. Cover above Rs 330.
Reliance Capital
Current Price: Rs 524
Target Price: Rs 490
Since mid-April, Reliance Capital has formed a pattern of higher tops and lower bottoms accompanied by increasing volume. This is often bearish and there could be a downside till around the Rs 490 level or lower. Keep a stop at Rs 530 and go short. Cover below Rs 495.
Sail
Current Price: Rs 109
Target Price: Rs 96
Other metal stocks have reacted more sharply than SAIL which is testing support at the current levels. If it drops below primary support at Rs 106, it is likely to slide till around the Rs 90 level – the minimum target would be the secondary support at Rs 95. Keep a stop at Rs 112 and go short. Cover at Rs 96.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)