There is resistance between 4,750-4,800 which might take some time to cross
The market saw a northwards breakout during settlement week and made significant gains. After seven successive winning sessions, the Nifty closed at 4,732.35 points for a week-on-week gain of 4.49 per cent while the Sensex was up 4.47 per cent at 15,922 points. The Defty gained 4.2 per cent as the rupee weakened slightly.
Breadth signals were good. Volumes were excellent (though that's expected in settlement week) and advances outnumbered declines. Domestic institutions and FIIs were all net buyers this week. The FIIs were probably short-covering after heavy sales through most of August. Smaller stocks outperformed biggies, with the BSE 500 rising 4.7 per cent and the Midcaps up 6 per cent.
Outlook: The move past 4,625 confirmed a breakout while the new 2009 high of 4,744 on Friday confirmed that the intermediate and long-term trend was up. The target in this move should be somewhere between 4,775-4,900. However, a short-term correction must be due.
Rationale: The market broke out of a 3-week range-trading pattern when it closed above 4,625. The target should be 150-250 points beyond the breakout. Given current volatility, a target of 4,900 could be achieved in two strongly trending sessions. But there is resistance between 4,750-4,800 and it's likely that it will take a while to clear. Profit-booking is likely to cause a short-term correction.
Counter-view: The new 2009 high confirms healthy intermediate and long-term trends. However, the intermediate trend has been up since mid-July and the last seven sessions have seen net gains. Intermediate trends usually last between 6-8 weeks, though they can last longer in a strongly trending market. So the trend could mature and reverse soon. A close below 4,625 would be the first important signal of trend reversal.
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Bulls & Bears: IT was the standout sector last week with the CNXIT index up over 8 per cent. Smaller stocks like FSL, Rolta, Mindtree and Hexaware looked more interesting than the big players though Infosys and TCS saw gains. Apart from the IT sector, there was a surge in real estate where the usual suspects such as Unitech, HDIL, DLF and IBREL all did well.
Telecom also saw support with Airtel, TTML and Idea registering rising volumes. Banks were relative under-performers and the sector seems to have gone off the boil. Bullish support to Aban, Hind Oil Exploration and Cairn ensured that the oil sector stayed firm. Apart from sector-wide plays, there was scattered interest in many counters such as Praj Industries, GVK, Voltas and UltraTech.
MICRO TECHNICALS
CAIRN INDIA
Current Price: 260
Target Price: Rs 285
The stock is testing a key resistance above the current level and it has seen volume expansion in the past week. If it closes above Rs 265, it has the potential to go till Rs 285-290. Keep a stop at Rs 255 and go long. Increase the position beyond Rs 265 and book profits above Rs 285.
MINDTREE
Current Price: Rs 533.85
Target Price: Rs 555
In the past five sessions, the stock has jumped on decent volumes. It should definitely reach the Rs 555-560 level and it may test the 52-week high of Rs 587. Keep a stop at Rs 525 and go long. Book at least 50 per cent profit at above Rs 550 and move the stop loss up to Rs 550.
HDIL
Current Price: Rs Rs 316
Target Price: Rs 300
The stock has climbed on relatively lower volumes causing a negative divergence between rising price and falling volumes. It is encountering massive resistance above the current levels and the nearest reliable support is at Rs 300 with some support at Rs 305. Keep a stop at Rs 320 and go short. Book partial profits at Rs 305.
BHARTI AIRTEL
Current Price: 435.2
Target Price: Rs 445
The stock made a breakout beyond resistance at Rs 430 on Friday and it saw volume expansion. The likely target is around Rs 455 while the minimum target should be about Rs 445. Keep a stop at Rs 430 and go long. Partially cover at Rs 445.
PRAJ INDUSTRIES
Current Price: 101.75
Target Price: Rs 115
The stock has seen a massive volume expansion coupled to the completion of a bullish breakout. It has a potential target in the range of Rs 115-116. Keep a stop at Rs 96 and go long. There's heavy resistance at Rs 107 so, book partial profits there.