Markets may see-saw

MACRO TECHNICALS

Breadth and volume signals indicate a minor recovery.

The long-awaited correction kicked in with a vengeance this week. After hitting all-time highs of 8521 and 2585 respectively, the Sensex and Nifty ended the week down by 1.89 per cent and 2.92 per cent. The Defty was down 2.99 per cent.

The broad BSE 500 was down 3.56 percent. Other breadth signals were more positive. On Wednesday and Thursday, declines far outnumbered advances. On Friday, NSE advances outnumbered declines. The overall market put-call ratio hit 1.12, which is highly oversold. Momentum indicators like the RoC and RSI bottomed out after sharp drops.

Outlook: Next week, a quick recovery may be followed by further declines. Uptrends would hit resistance around Sensex 8400 (Nifty 2525). A downtrend would hit primary support around Sensex 8200(Nifty 2440) and then at Sensex 8150(Nifty 2400). Expect oscillation between these two levels before the next intermediate trend is established with a breakout.

Rationale: The market has hit oversold levels "� vide the PCR and RSI/ Roc behaviour. There's enough positive breadth and volume to support some sort of recovery.

Intermediate indicators indicate possible net losses for a few weeks. Fibonacci calculations suggest that support at 2400 will be tested. Declining volumes say a recovery will not have the demand-strength to push past Nifty 2525.

Counter-view: Every correction since May 2004 has been followed by a buying frenzy. There's plenty of liquidity with both domestic players and FIIs. The new dispensation on mutuals taking derivative positions could bring more players into action. It doesn't matter if the attitude is initially bullish or bearish; volumes drive markets.

Compare this to the intermediate downtrend in March-April 2005. In this correction, the market has lost over 4 per cent in three sessions; in March-April 2005, it knocked off 13 per cent in six weeks. Obviously there's room for a larger correction followed by another powerful rise.

Bulls & Bears: Among the big boys, Infosys, Satyam and Reliance Industries seem bearish. However Grasim, Hindustan Lever, Indian Hotels, ITC, Nicholas and Zee seem bullish while Oriental Bank, Bank of Baroda and SBI seem to have stabilised after huge fluctuations.

MICRO TECHNICALS

Bank of Baroda
Current price: 225
Target Price: 245

BoB has found excellent support at 2202-225 and performed a double-bottom. There's room for a rebound to 240 levels on technical grounds alone. There is a big resistance above 240. Go long, keep a stop at 220 and start selling as and when, BoB reaches 240 levels.

Hindustan Lever
Current price: 170
Target Price: 176

The HLL has hit good support around 165 and started a rebound. It could move up until 176 before it is derailed by strong resistance. There isn't much downside risk if the market does see overall losses. Go long and keep a stop at 165.

ITC
Current price: 136
Target Price: 145

The stock has been energised by new found liquidity after the split. It should test a resistance between 145-150 again, near its all-time highs (after adjustment for the split). There is a downside risk - if the support at 135 near the current price of 136 breaks, the stock would react to the 129-130 level.

Infosys
Current price: 2398
Target Price: 2350

The stock has seen a sharp sell off in the past three sessions. It could drop till the 2350 level before finding reliable support. Either go short with a stop at 2425 and cover the trade at 2350. Or wait until 2350 is hit and then go long with a stop at 2325.

Reliance Industries
Current price: 747.75
Target Price: 735, 775

The stock has been hammered in the past two sessions. There could be a downside until the 735 levels.

On the upside, there is a potential to go to 775. The trend appears bearish. Go short, keep a stop at 755 and cover the trade at 735. If the stock does rise past 755, go long and hold the position until past 770 with a stop at 755.

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