Range trading likely

MACRO TECHNICALS

The market crashed on Tuesday as exit polls about Monday's polling came up with a confused picture and suggested that the NDA may be hard-pushed to retain a majority. The Sensex/Nifty et al saw the biggest single-day decline since September 2001.

The rest of the week also saw net declines. The Sensex ended at 5655.09 points for a week-on-week loss of 4.56 per cent and the Nifty lost 5.09 per cent, closing on Friday at 1796.1 points. The Defty lost 4.98 per cent, with the rupee recovering its initial losses.

Breadth signals were also negative, though not as bad as the dip in the major indices would suggest. Volumes were down on most sessions.

Advances were outweighed by declines though Friday's session saw almost as many advances as declines. The Nifty put-call ratio was down to 0.28 by Friday on the second day of the new settlement, which is overbought but it was as high as 0.64 on Tuesday when the crash occurred.

Outlook: There's a lot of support between Sensex 5550-5650/Nifty 1765-1800. If that breaks, the market could dip till it hits support between Sensex 5350/Nifty 1675. On the upside, there's resistance around Sensex 5800/Nifty 1850.

The market will probably stay in the range between 5650-5800/1800-1850 until the next round of elections on May 5. Since it's at the low end of this range, the implication is that next week may see small rises.

Post May 5, the market may make a dramatic breakout in either direction. Going by time-zone calculations, it's likely to move upwards in the third-fourth week of May, after the elections are finally over.

Statistically, too, a post-election rise is very likely. It's happened after every general election since 1989.

Rationale: Charts and indicators are all giving indecisive signals in the short-term. This means range-trading is likely to continue in the near-term or at any rate; a large move is not going to come with a great deal of advance warning. The intermediate and long-term indicators look good - the market has seen a pattern of rising tops between March 8 and April 23.

Counter-view: If we get a hung parliament, the range-trading could mutate into a steep fall in late May. That prospect cannot be ruled out - however, even weak coalitions like 1989, 1991, 1996 and 1998 have not been badly received by the market in the initial stages.

But expectations are different this time and a hung parliament could well result in a sharp dip.

Bulls and bears: There seems to be few stocks capable of moving against overall market sentiment at this instant. The pharma sector seems to have the most candidates for instant bullishness. Aurobindo Pharma, Cipla, Nicholas and Sun Pharma seem quite bullish.

Other isolated examples of bullishness would include Atlas Copco, Century Textile, Corporation Bank, Kesoram Industries and Tata Tea.

Micro Technicals

CIPLA
Current price: 1369
Target price: 1625

The stock is testing resistance around the current levels. A move above 1380 levels and closes above that level would complete a strongly bullish formation. The target price would then be around 1625. We would expect that target to take around three weeks to be attained. Either go long now, or wait for closes above 1380. Keep stops around 1330.

CENTURY TEXTILES
Current price: 125
Target price: 175

The stock seems on the verge of completing a reverse head and shoulder formation. There has been some volume expansion on the right shoulder although a class H&S would show more volumes. The formation would complete when closes above 130 are attained. This formation has a potential target of around 175 but it may take about four-six weeks to achieve that. Go long and keep a stop around 120.

TATA TEA
Current price: 380
Target price: 395,445

The stock is on the verge of completing a potentially bullish formation with signs of an accompanying volume expansion.

It is facing resistance at current levels and if it closes a couple of times above the 385 levels, it will complete a saucer-shaped bullish pattern. There is strong resistance at around 395-400, and that would be the short-term target. In the timeframe of about three-four weeks, Tata Tea can be expected to break that 395 resistance when it would have a target of around 445.

KESORAM INDUSTRIES
Current price: 76.65
Target price: 95

The stock has moved up out of a v-shaped formation with a sharp increase in volumes. This sort of formation generally tends to have reliable targets and the volume expansion makes it more reliable. The minimum target would be around 95 and it could go further. There's good support between 71-73. Keep a stop below 71.

NICHOLAS
Current price: 863
Target price: 925

The stock has just broken out after completing a saucer-shaped bullish pattern with strong volume expansion in the last five sessions. It has already moved up a fair amount from the lip of the saucer at 825. The near-term target would be around 925. Keep a stop at 825 - the stock has moved so fast, there is no support level closer to current price and this is one possible danger.