Is the market headed for a recovery?

MACRO TECHNICALS

Low volumes indicate otherwise.

The recovery continued through the week with net gains except on one session. The Nifty closed up by 5.27 per cent at 3042.7 while the Sensex was up by 5.23 per cent at 10401.3 points. The Defty returned 4.61 as the rupee lost significant ground again.

The broad BSE 500 was up by 5.89 per cent and advances comfortably outnumbered declines. However volumes remained lacklustre throughout the week, which is usually a sign that a bull run is technically unsustainable.

Outlook: The market is running into resistance and there could be a sell off early next week. There's support at Nifty at 2860 and lower down at 2725. Below that, the index would test its 2006 lows of 2650.

Rationale: Leading momentum indicators like the RoC have moved into overbought territory and started to turn down""a negative divergence in a rising market. There's also massive resistance between 3050-3150 and the market won't cross that without a significant volume expansion.

Counter-view: The market has just crossed above its own 200 DMA again. This could mean that the long-term trend has turned bullish again after a six-week downturn. One signal would be a continued uptrend through next week.

Another would be the next bottom coming above 2650. This short-term rally is either the first reaction in a new long-term bear market (which began on May 11), or we're in a recovery phase of a long-term bull market, which has just finished a major correction. The next week's movement will probably offer more clarity.

Bulls & bears
My feeling that there will be a reaction next week is reinforced by a look at key stocks. There's not too much around with clearly bullish signals of strong gains backed by volumes expansions.

On the other hand, there aren't too many scrips around, which look particularly weak. We will probably receive another dose of higher volatility with settlement coming up. The list of majors which could drive the market up includes Ranbaxy, Reliance, Satyam and Tata Tea.

MICRO TECHNICALS

Jet Airways
Current Price: 692.55
Target Price: 650 (downside) "" 760 (upside)

There's been lots of action in the stock for obvious reasons. It could swing between 650-760 next week. Any move outside the narrow limits of 680-700 will probably set a trend. Go with that trend. That is, if it moves above 700 go long with 700 as the stop loss. If it drops below 680, go short with 680 as the stop. Or else, take a two-way position in the F&O.

ONGC
Current price: 1100
Target price: 1040. 1060.

The stock looks as though it could react from strong resistance between the current price and 1115. Go short, with a stop at 1120 and expect a downside till around the 1040 levels. Book partial profits at 1060.

Ranbaxy
Current price: 385
Target price: 410

The stock is developing a bullish formation accompanied by strong volume action. Keep a stop at 375 and go long. The target should be about 410 though there is a chance of a rise till the 430 levels. Book partial profits above 410.

Satyam
Current price: 703.95
Target price: 725

The stock has developed decent volumes and it has risen sharply in the last session. It could move till around the 725 level before hitting serious resistance. Keep a stop at 695 and go long. Cover above 725.

Tata Tea
Current price: 754.8
Target price: 815

The stock has spiked in the last five sessions. The target projection would be 830 but it doesn't have a good volume action. There is resistance at 815 and that won't be overcome unless volumes jump. Go long, Cover above 810. Keep a stop at 735.

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