Market jumps on short covering

MACRO TECHNICALS

It's difficult to tell yet if this is a technical correction inside a major downtrend.

The market rebounded strongly through settlement week as short-covering triggered a technical recovery.

The Nifty closed at 4464 points for a rise of 6.54 per cent while the Sensex closed at 15318.6 points for a rise of 6.19 per cent. The Defty was up 6.93 per cent as the rupee also strengthened. The Nifty Junior jumped an incredible 8.14 per cent.

The recovery was across the board with the BSE 500 rising 6.64 per cent and a positive advance-decline ratio. This was despite FIIs being net sellers until the end of the settlement on Thursday.

Domestic mutual funds were net buyers and so were operators and retail traders. The Bank Nifty also jumped 8.08 per cent despite bearish pronouncements from the RBI. The CNX IT rose 5.09 per cent despite the adverse rupee situation. Volumes were average for a settlement week.

Outlook: The Nifty could run into selling pressure on Monday but it is likely to find a primary support at 4400. The intermediate downtrend has apparently reversed "� it's difficult to tell yet if this is a technical correction inside a major downtrend.

Rationale: The last six sessions has seen a rise from lows of 4100. The intermediate downtrend that started on July 27 terminated on August 24.

By definition, if the bull market is alive, we will see new all time highs in the next four-six weeks. If on the other hand, this is a correction inside a new bull market, the upmove will terminate without new highs. It seems like the bull market is alive. Volumes have been reasonable on the upswing, the downtrend was relatively short and support held around the crucial 200-day moving average's level.

Counter-view: We don't know for sure yet if the bull market is alive. The subprime crisis that triggered the sell-off may not be over although global liquidity and confidence has clearly improved. Confirmation one way or the other of the major market trend depends on new highs or their absence.

Bulls & bears: Every market segment was bullish last week. Quite a lot of this started with short-covering but the uptrend did develop momentum. The Junior Nifty was the set with the most impressive performance.

Much of the F&O list is poised close to major resistance and it would be over-optimistic to expect those barriers to be crossed without a short-term correction.

Several stocks look capable of breakouts however. Reliance has already hit a new high, IPCL is following in its wake and Bhel is going strong. While banks did well as a group, ICICI Bank and Syndicate Bank look most capable of sustaining the performance.

Transport stocks such as Jet, M&M, Maruti and Tata Motors saw big bounces. Sail, Tisco and Bhushan Steel rose sharply. There was scattered interest visible across scrips like Ranbaxy, Tech Mahindra, Nagarjuna Fertilisers, GMR Infrastructure and Teledata Informatics.

MICRO TECHNICALS

Bhel
Current Price: 1888.45
Target Price: 2000, 2150 The stock has risen to a new (split-adjusted) high on decent volumes. There is a likely target of 2000. Keep a stop at 1830 and go long. Book partial profits above 1925. Consider taking a delivery position with a 12-week timeframe since the long-term target could be about 2150.

Nagarjuna Fertilisers
Current Price: 40.45
Target Price: 45 The stock has moved to a new high with a volume expansion. A short-term target of 44-45 can be projected and the long-term pattern seems quite promising. Keep a trailing stop at 38 and go long. Move the stop up by 1 for every 1 unit rise. Consider averaging up to create a delivery position.

Reliance Industries
Current Price: 1960.9
Target Price: 2075 The stock has hit a new high "� this augurs well for the Nifty and Sensex since RIL has a huge weight in the major indices. There is a target projection of 2075 but the volume pattern is relatively weak. Keep a stop at 1940 and go long.

Sail
Current Price: 168.4
Target Price: 185 The steel PSU has hit a new high and there has been a volume expansion as well. The target projection would be about 185 with a long-term possibility of 195-200. Keep a stop at 160 and go long. Book partial profits above 180.

Teledata Informatics
Current Price: 69
Target Price: 73, 87 (long-term) There has been a massive volume expansion along with a price rise in a hitherto-staid stock. There is likely to be some selling pressure between 68-73. If the stock closes above 73, it is likely to have clear run till the 87-mark at the very least. Keep a stop at 67 and take delivery. Book some profits above 72.

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