Intermediate trend may be close to reversal.
The market consolidated after hitting a new 2009 high. The Nifty closed at 4,958.95 points after hitting a high of 5,036, for a nominal week-on-week loss of 0.34 per cent. The Sensex was down 0.28 per cent closing at 16,693 points. The Defty lost 0.17 per cent with the rupee strengthening.
Sustained FII buying of a net Rs 9,600 crore in the past nine sessions has been a key driver. This far outstripped net sales of around Rs 500 crore by domestic institutions. Breadth indicators were good. Advances slightly outnumbered declines. The volumes dropped on Friday, as is normal in settlement week. Smaller stocks outperformed heavyweights. The BSE 500 saw a nominal rise as did the Midcaps, Junior and Bank Nifty.
Outlook: The market traded inside a narrow range of 4,900-5,050 last week. It could be due for a correction. If it closes below 4,900, it is liable to drop till the 4,750 level before it finds support. If it does clear 5,050 (5,040 to be exact) and closes above that level, it could move till 5,200.
Rationale: There are several bearish signals. The market has run into strong resistance between 5,000-5,050 with bearish multiple tops at 5,030. The intermediate trend has been bullish for 10 weeks and could be close to reversal.
The low volumes of Friday could signify an impending correction. However, by definition, the market trend is up since it has just hit new highs. A bullish intermediate trend in a big bull market can last longer than 10 weeks. So, a further rise cannot be ruled out.
Counter-view: The FIIs hold the key to direction. Domestic players, including major operators as well as institutions, are booking profits. The weak domestic attitude is typical of the festive season. But, if the FIIs stay as positive as they have been in the recent past, they are capable of absorbing all the selling. In that case, the market will head up rather than down.
More From This Section
Bulls and Bears: One industry that made a comeback was pharma. Sun Pharma, Cipla and Ranbaxy all registered huge volumes along with rising pricelines.
Apart from this, bank and financial shares went up, but the trading here is very stock specific. IDBI Bank and DCB are among the more bullish counters. In contrast, ICICI Bank and SBI have started correcting. Real estate generated massive volumes, but momentum slowed in the latter part of the week – if there is a reversal in this sector, it could be a cause of overall weakness.
IT also saw a slowdown with most majors encountering selling late in the week. Metals also saw corrections on Friday and there are potential shorts visible in counters like Sail, Tata Steel and Sesa Goa.
There were stock-specific moves in several counters that saw unusually heavy trading. Kingfisher for instance, generated massive volumes along with an apparent bounce. GTL Infra and KS Oils also saw very high trading interest. There was also some selective buying in hospitality stocks like Indian Hotels and Hotel Leela.
MICRO TECHNICALS
GTL Infra
Current Price: Rs 41.35
Target price: Rs 47
The stock is testing a key resistance on high volumes. If it closes above Rs 42, it is liable to move till around Rs 47-48. Keep a stop at Rs 40 and go long. Increase the position between Rs 42-43 if the stock closes above Rs 42. Book profits above Rs 46.5.
IDBI
Current Price: Rs 124.9
Target price: Rs 135
The stock has shot to a new 52-week high on strong volumes. It has a target of about Rs 135 on the basis of chart patterns. But, target projections are always inexact in a new zone. Keep a trailing stop at Rs 120 and go long. Raise the stop 5 points for every 5 point rise.
Polaris Software
Current Price: Rs 150
Target price: Rs 160
The stock is testing resistance close to its 52-week high and its generating high volumes. If it closes above Rs 151, it is likely to move till Rs 160 at the minimum. Keep a stop at Rs 146 and go long. Add to the position at Rs 152-153. Book profits at Rs 160.
Sun Pharma
Current Price: Rs 1,308
Target price: Rs 1,375
The stock has jumped on high volumes, clearing an important resistance. It runs into strong resistance in a band between Rs 1,350-1,400. The formation suggests a target in the Rs 1,375 range is likely to be fulfilled. Keep a stop at Rs 1,290 and go long.
Tata Steel
Current Price: Rs 498.35
Target price: Rs 475
The stock started reacting from a high of Rs 540-plus about 3-4 sessions ago. It is likely to have a downside till it hits support at around the Rs 475 level, though there is some support at Rs 485 as well. Keep a stop at Rs 505 and go short. Book partial profits below Rs 485.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)