Unless FIIs change their attitude, the break is likely to be downwards with a target between 2,500-2,600.
Settlement week went through with no change in the pattern of narrow range-trading. The Nifty closed at 2,763 points for a rise of about 1 per cent while the Sensex was up 0.55 per cent closing at 8,891 points. The Defty was down 0.89 per cent as the rupee crashed to a historic low of 50.73 with the USD-INR trading below 51.
Breadth remained negative with advances outnumbered by declines and volumes low. FIIs continued to be sellers for around 10 successive sessions and domestic institutional buying towards the weekend was insufficient to hold the market up. The broad BSE500 was down a marginal 0.05 per cent.
Outlook: This pattern of extremely narrow range-trading between 2,675-2,800 should break soon. It has already gone on unusually long. Any news-based event could tip the balance. Unless FIIs change their attitude, the break is likely to be downwards with a target between 2,500-2,600. On the upside, there is key resistance at 2,850.
Rationale: The market has been unable to climb above 2,850 and bearish breadth-volume indicators make downside break more likely. The daily volatility over past few weeks has dropped well below the average. It is likely to spike back up to normal levels on a breakout.
Counter-view: Judging timing and direction of a breakout from a trading range is among the most difficult tasks in technical analysis. A small increase in demand or supply can have a disproportionate effect in low-volume situations. The FIIs could be due for an attitude reversal after 10-sessions of sell offs. If this happens, it could be sufficient to trigger an upside breakout.
Bulls & bears: Traders would be well advised to stay within the ambit of highly liquid counters and to maintain tight stops on all their positions until such time as the breakout occurs. The IT sector was an out performer last week as it responded predictably to a weaker rupee with the CNXIT up 2.3 per cent.
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Banks dropped more than the overall market with the Bank Nifty down over 1 per cent but there was a recovery apparent across the sector on Friday. As usual in recent times, the PSUs outperformed private banks with Bank of Baroda, Oriental and PNB looking the most likely to stay bullish. Cement and real estate stocks lost a fair amount of ground with Grasim, ACC, Ambuja and DLF, Unitech, all taking a hammering. Cement in particular saw massive selling volumes. Apart from these, winners and losers were scattered unevenly across sectors with far more losers than winners. Auto and auto-ancillary stocks such as Amtek Auto, Bharat Forge, Ashok Leyland and Bajaj Auto all made positive contributions.
MICRO TECHNICALS
ACC
Current Price: Rs 540
Target Price: Rs 520
The stock is poised on support at current levels and the industry is seeing massive selling. If ACC closes below Rs 540, it has a minimum target of Rs 520. If Rs 520 is broken, the downside would be Rs 500. Go short with a stop at Rs 550 and book partial profits at Rs 520.
Bank of Baroda
Current Price: Rs 220
Target Price: Rs 235
The stock bounced off a low at Rs 205 with enhanced volumes. It has the potential for a recovery till the Rs 235 level and a small chance of going up further till Rs 240. Keep a stop at Rs 210 and go long. Start booking profits above Rs 232.
Bharat Forge
Current Price: Rs 95
Target Price: Rs 105
The stock is on the verge of an upwards breakout but it lacks strong volume action. Chart patterns suggest a target between Rs 105-Rs 110 but low volumes will probably mean under-performance. Keep a stop at Rs 90 and go long. Book profits above Rs 105.
Reliance Capital
Current Price: Rs 353
Target Price: Rs 325
The stock may be headed for a new 2009 low with high volumes and falling prices. The target is difficult to compute because this is new territory with no price history. But a fall till around Rs 325 looks likely. Keep a stop at Rs 360 and go short.
Tata Steel
Current Price: Rs 173
Target Price: Rs 185
The stock has seen a sharp recovery on high volumes off lows at Rs 155. If the volumes are sustained, there is room for a move till the Rs 185 level. This seems a short-term reaction against a bearish long-term trend. Go long, keep a stop at Rs 168. Book profits above Rs 182.