The market’s fall along with a rise in volumes suggests that there has been a decisive downward breakout.
Three successive losing sessions have triggered a downside breakout from a trading range. The Nifty closed at 2,810.35 points for a loss of 5.47 per cent. The Sensex was down 5.8 per cent closing at 9,385 points. The Defty lost a much larger 8.25 per cent as the rupee slid on heavy selling by FIIs. Domestic institutions were also net sellers.
Volumes rose as the market fell, which reinforces the feeling that there has been a decisive downwards breakout. Declines heavily outnumbered advances. The BSE500 lost 5.3 per cent and smaller stocks saw disproportionate declines in volume.
Outlook: When the market broke below 2,850, it set up a downside target of somewhere between 2,450-2,550. There is very strong support at 2,550 so that is likely to hold. However, below 2,550, there is little recent support (the zone between 2,200-2,500 was last extensively traded several years ago). A close below 2,550 could mean a dip till 2,250.
Rationale: Although volumes have not been high, there was expansion on the downturn and the support at 2,850 was broken on relatively higher volumes. That makes target projections more likely to be fulfilled especially if both FIIs and domestic institutions remain net sellers. Both 2,550 and 2,250 are very crucial support levels.
Counterview: There is some support at the current levels. Therefore, the breakout is not absolutely confirmed yet. A sharp recovery till 2,950 is entirely possible. Either way, the market is likely to continue exhibiting extreme volatility. Volumes are not likely to improve until within 4-5 sessions of settlement.
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Bulls and Bears: Declines far outnumbered advances and there were practically no bullish pricelines in the F&O space. Realty, autos, banking and metals remained the most bearish segments of the market. PSU Banks like SBI and BoI are more likely to hold ground. Axis has made a big downside breakout. Sail and Tata Steel are among the most bearish looking of metal stocks and Maruti seems on the edge of a downside breakout.
Engineering stocks like Greaves, Cummins and L&T look weak. Among pharmaceutical companies, Lupin and Matrix have seen heavy selling that could continue.
The PSU refiners such as HPCL and maybe, BPCL could move contrary to the overall trend but Reliance Industries has seen massive selling. IT could prove to be a buffer, assuming the rupee stays weak. FMCG majors Dabur and HUL and Tata Power and TTML could also be bullish.
MICRO TECHNICALS
Axis Bank
Current Price: Rs 492.95
Target Price: Rs 460
The stock made a downside breakout by closing below Rs 503 on a pattern of increasing volume. The target projection would be around Rs 460 and it could drop further because there is no recent support in that region. Keep a stop at Rs 500 and go short. Cover partially below Rs 470.
GMR Infra
Current Price: Rs 67.25
Target Price: Rs 82
The stock is making a promising recovery with high volumes from bottoms in the Rs 45-50 range. It will complete a bullish breakout if it closes at or above Rs 70. Keep a stop at Rs 64 and go long. The target would be about Rs 80-82.
Reliance Industries
Current Price: Rs 1,146.75
Target Price: Rs 1,075
The stock has seen continuous massive selling. If it closes below Rs 1,135, the next support is Rs 1,075 and after that, Rs 1,020. The target projection would be Rs 1,000 and that is likely to be hit intra-day. Keep a stop at Rs 1,170 and go short.
Satyam Computer
Current Price: Rs 261.4
Target Price: Rs 300
The stock seems to have found good support at the bottom of a trading range. It has the potential to bounce back till around Rs 300. Keep a stop at Rs 255 and go long. However, if the Rs 255 stop is broken, be prepared to go short with a stop at Rs 265 and a downside target of Rs 230.
Tata Power
Current Price: Rs 746.7
Target Price: Rs 830
The stock has witnessed a positive intermediate trend since late October when it bottomed at Rs 530. It should climb till the Rs 830 level on the next upmove in the perspective of the next 10 sessions. On the downside there is good support at current levels and below, at Rs 730. Keep a stop at Rs 730 and go long.