Range bound trading continues

Support at 5,150, resistance at 5,300.

The market hit a new 52-week high in the first full week of trading. But volumes tapered off and prices dropped towards the weekend. The Nifty closed at 5,244.75 points with a gain of 0.8 per cent after climbing to 5,310. The Sensex was up 0.4 per cent, closing at 17,540. The Defty gained 2.75 per cent as the rupee strengthened sharply.

Breadth indicators were good with advances comfortably outnumbering declines despite Friday's sell off. The rupee's strength was partly due to committed buying from FIIs and domestic institutions were also net buyers. The Nifty Junior was up 2.7 per cent while the BSE 500 rose 1.7 per cent. The Midcaps also outperformed the Nifty, rising 3.8 per cent. Volumes were on the low side.

Outlook: The market is liable to range between 5,150 and 5,300 next week and the initial bias could be negative. Any breakouts could lead to a 150-200 point swing if there's a volume expansion with the breakout. That is, if the market drops to a close below 5,150, it could drop till around 4,950 and if it rises to close beyond 5,300, it could test 5,400-5,450.

Rationale: The poor advance-decline situation on Friday (when most stocks closed lower than Thursday) suggests a short-term decline. However, there is very strong support in the erstwhile zone of resistance between 5,150 and 5,180. On the upside, there is a lot of resistance between 5,275 and 5,300. To clear that resistance, it will require serious volume expansion. Even the 5,400-5,450 zone has massive trading history, so the Northwards journey will need lots of fuel.

Counter-view: The long-term trend is firmly up. The absence of volatility in the past two-three weeks can be explained to some extent by the lack of volume, which in turn is partly due to the holiday season. If volumes improve, as they should, over the next 5-10 sessions, prices are likely to show an upward trend. The one serious danger would be a pullout by FIIs.

Bulls & bears: The IT sector was hit hard by the rupee rise – most of the majors have seen selloffs and the CNXIT dropped 3.7 per cent this week. Results are soon due for Infosys and TCS, and the market sentiment seems bearish. One exception is Mahindra Satyam, which climbed last week. Banking appears to be past a recent bearish phase and it will probably outperform the market. IDFC and Axis Bank may beat the overall financial sector.

Realty made a strong comeback on Friday with most of the big guns rising, but part of this may have been short-covering ahead of the weekend. Engineering and construction stocks like HCC, GMR Infra, Nagarjuna Construction, Maytas and Jyoti Structures also did well. Automobile shares saw profit-booking. But, auto ancillaries such as Bharat Forge, Bosch India and Sona Steering saw bullish backing. Non-ferrous metal stocks also saw buying and Sterlite and Hindalco continue to look interesting. There was scattered stock-specific interest in counters like Suzlon, GE Shipping, JP Associates and NTPC.

MICRO TECHNICALS

INDIABULLS REAL ESTATE
Current Price: Rs 227.40
Target Price: Rs 245

 

The stock has started a recovery on short-covering from around Rs 215. There is sufficient momentum for a rise till around the Rs 245-250 mark. Keep a stop at around Rs 220 and go long. Increase the position between Rs 232 and Rs 235 and start booking profits at Rs 245.

ESSAR SHIPPING
Current Price: Rs 80.90
Target Price: Rs 90

 

The stock has seen a relatively recent trend reversal to positive. It had massive volume expansion in the past few sessions. It could have the potential to move till around the Rs 90 mark. Keep a stop at Rs 78 and go long.

HUL
Current Price: Rs 265.95
Target Price: Rs 280

 

The stock has seen selling that has pushed it down to a good support. It could bounce till around the Rs 275-280 levels. Keep a stop at Rs 262 and go long. Book partial profits at Rs 275 and clear the position at Rs 280.

TCS
Current Price: Rs 699.80
Target Price: Rs 680

 

A sharp reaction has started from a recent high of Rs 760. Volumes have increased as the price has fallen, which is usually a danger signal. There is some support at current levels but the next reliable support is at Rs 680. Keep a stop at Rs 705 and go short. Cover at Rs 680.

STERLITE INDUSTRIES
Current Price: Rs 906.35
Target Price: Rs 940

 

The stock has completed a bullish breakout with some volume expansion. The target would be about Rs 940. Keep a trailing stop at Rs 890 and go long. Increase the position between Rs 915 and Rs 920 and raise the stop to Rs 910. Start booking profits at Rs 935.

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