| A massive sell off on Friday pulled the market back from record highs. The Nifty closed at 4,445.2 losing 2.46 per cent on a week-to-week basis. The Sensex was down 2.12 per cent at 15,234.57 points. |
| For the record, the Nifty and Sensex achieved all time highs on Tuesday at 4,647 and 15,868 respectively. |
| Volumes were massive on Friday "� even higher than during Thursday's F&O settlement, which in itself set records. The advance to decline ratio was exceedingly negative. There would be cold comfort for dollar-investors because the rupee lost ground and the Defty was down 2.86 per cent. |
| On Friday, anecdotal evidence suggests that domestic as well as foreign institutions were big net sellers. |
| Outlook: Chart patterns suggest that the correction is likely to continue in the timeframe of the next 3-4 weeks. The Nifty has an intermediate support at 4,300 which is likely to be tested. |
| However, there should be a pullback early next week when shorts are covered. The upside on a recovery is likely to be no more than about 4,550 at the maximum. |
| Rationale: Friday's breakout looks like a classic. Volumes expanded as successive supports were broken and this means a strong intermediate downtrend. The next reliable support is around Nifty 4,300 and that is likely to be tested. |
| However, a pullback to 4,500 on short-covering is quite likely and even a pullback to 4,550 is possible. Both those levels are significant resistances and it would take an extraordinary turnaround in sentiment to generate enough volume to push price up further. |
| Counter-view: Friday's trading saw extraordinary volumes "� more even than in the May 2006 crash. While high volumes is usually a bad signal on sell offs, very, very high volumes can mean a selling climax "� all bearishness is flushed out and no sellers are left. If that's the case, this will be followed by small price gains on very low volumes in the subsequent 5-10 sessions. |
| However, resistance at 4,550 is very strong and unlikely to be broken. Hence, an intermediate downtrend is near-certainty. It remains to be seen how long that will last and how deep the correction could go. |
| Bulls & bears: There are no bullish pivotals except for ITC. We can however, seek stocks that will recover quickly on a pullback. And of course, we can seek stocks that look extra-weak and likely to lose more ground than the market. |
| Ranbaxy and Maruti moved up due to massive short-covering during the past two sessions. Bhel has hit support and Suzlon saw some investment buying. Tata Power held on solid results. The entire banking sector may see a relief rally if RBI opts for a rate cut (unlikely) on July 31. |
| MICRO TECHNICALS |
| ITC Current Price: 172.4 Target Price: 185 |
| The stock appears to have made a bullish breakout on high volumes. It has strong support at 170. The upside target would be between 185-190. Keep a stop at 169 and go long. Book partial profits at 180. |
| Maruti Current Price: 830 Target Price: 805 |
| Short-covering has led to a pickup in price but the scrip has been unable to penetrate resistance at 835. Keep a stop at 835 and go short. Cover at 810. The intermediate trend is likely to be range trading through a zone of 805-835. |
| Sail Current Price: 148 Target Price: 137 |
| The stock has made a downside breakout on reasonable volumes. It has support at current levels but that is likely to be broken. The next reliable support is at 135-137. Keep a stop at 151 and go short. Cover at 138. |
| Ranbaxy Current Price: 374.7 Target Price: 355-385 |
| Massive short-covering has led to a recovery from lows of 339-340. Ranbaxy has huge resistance at 380 but it could penetrate this on an intra-day basis. |
| Next week, expect trading to range through 355-385 with closes near the lower end of the range. The pattern will re-align to that of the overall market. |
| Reliance Industries Current Price: 1,867.5 Target Price: 1,810 |
| The stock has made a downside breakout on big volumes. It has reliable support between 1,795-1,820 and is likely to settle in the middle of that zone. Keep a stop at 1,875 and go short. Cover at 1,820. |
| (The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.) |
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