Short covering drove the index up past what may be a key resistance. The Nifty closed at 2,875 points, up 7.3 per cent, while the Sensex closed up 8.64 per cent at 9,424 points. The Defty was up 7.85 per cent, as the rupee recovered from below the 40-level.
Volumes were low, especially given that it was settlement week. Advances marginally outnumbered declines. The Junior was ahead 2.56 per cent while the BSE 500 was up 6.94 per cent and the Midcaps 50 rose 7.85 per cent. The FIIs were marginally negative in their weekly positions while domestic institutions were significant net buyers.
Outlook: The market has cleared a key resistance at 2,850. This should mean a rise till above the 3,100 but there is some more resistance just above the current levels. If the market closes above 2,900, it is likely to cross 3,100. If it cannot clear 2,900, the Nifty is likely to collapse back till the 2,650-2,700 level.
Rationale: There is a strong resistance at around 2,900 and the market may not have the volume to push past that level. Technical signals are mixed. The trend will depend on FII attitude through next week. If they stay negative or ambivalent, the chance of a slide back till the 2,650 level or even lower remains.
Counter-view: The past three weeks have seen volumes evaporate. This signal is usually bearish in nature. However, it also occurs at the trough of a big bear market when supply is low (because would-be sellers have already sold) and demand is also low (there is no buying power). In that case, range-trading could continue.
Bulls & bears: The trend across bigger stocks is mixed and confusing. On balance, the market is likely to go up because Reliance appears to be positive in trend and so are a couple of other index pivotals including L&T, Bank of Baroda and RCom.
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The sugar sector is positive with Balrampur, Sree Renuka and Triveni all looking bullish. Banks are a crucial sector – the Bank Nifty underperformed last week but it ended on a positive note.
This week, PSU banks like Bank of India, BoB and SBI are more likely to drive the index. If banks do move up, so will brokerages like Edelweiss and India Infoline.
This could also have a positive effect on realty stocks. There may also be scattered winners like Suzlon, Hindalco, Petronet, RCom, Reliance Infra, and TV-18. However many stocks also have downtrending pricelines and especially Aurobindo Pharma and Bhel look like good shorts.
MICRO TECHNICALS
Balrampur Chini
Current Price: Rs 60
Target Price: Rs 69
The stock has moved up with a sharp increase in volumes. The chart pattern suggests a potential upside till around the Rs 70 level but there’s resistance beyond Rs 68. Keep a stop at Rs 57 and go long. Cover beyond Rs 68.
Bhel
Current Price: Rs 1,321
Target Price: Rs 1,280
A sell off on high volumes has led to a downside breakout from a trading range. The target would be Rs 1,275. Keep a stop at Rs 1,335 and go short. Cover below Rs 1,280 levels. However, if support at Rs 1,270 is broken, the stock may fall to Rs 1,200. So consider renewing the short if Bhel closes below Rs 1,270.
Hindalco
Current Price: Rs 49
Target Price: NA
There has been a recovery on good volume action from around the Rs 44-Rs 45 levels. If the stock can close above Rs 50, it will have a target of about Rs 58. Keep a stop at Rs 47 and go long. Increase the long position if the stock closes above Rs 50.
India Infoline
Current Price: Rs 45
Target Price: Rs 54
The stock has developed good volumes and Friday was bullish. The potential target is about Rs 53-Rs 55. Keep a stop at Rs 43.5 and go long. Cover above Rs 53.5
Suzlon
Current Price: Rs 47
Target Price: Rs 57
The stock has started picking up volume. It has oscillated several times between Rs 43- Rs 57 and it could be due for another move to the top of this trading range. Keep a stop at Rs 45 and go long. Cover above Rs 56.