Range-trading likely

MACRO TECHNICALS

The indices have climbed to new peaks but ROC and RSI haven't.

The market went through a mild correction followed by another surge and another mild correction. Week-on-week, all this action merely resulted in nominal change.

The Sensex was up 0.17 per cent, closing at 7767.49 points while the Nifty was held almost unchanged at 2361.55 points. The Defty was actually down a trifle as the dollar gained marginally against the rupee.

Breadth signals were confusing. The broader indices such as the BSE 500 gained slightly more but the advances to declines ratio was down by weekend. Volumes rose somewhat in the last two sessions.

Outlook: The market could continue to range-trade for upto another 10 sessions between a clearly defined support level at Nifty 2320 ( Sensex 7500) and an equally clear resistance at Nifty 2385 (Sensex 7825).

Moves beyond these limits would set up a trend. Tuesday's trading is likely to begin strong. In terms of time, we would expect a new trend to be defined within the next two weeks. The odds are slightly in favour of the next trend being a correction.

Rationale: It's always difficult to predict the direction of likely breakout from a range-trading zone. However, the intermediate trend has been positive for over three months and that's longer than normal.

On daily charts, momentum indicators are showing negative divergences "� the indices have climbed to new peaks but the ROC and RSI have not. That combination of time-extension and negative divergence could mean the next correction will be quite powerful.

Counter-view: At the beginning of a new long-term bull market (or a new bear market), the first intermediate surge (or drop) can last longer than the normal six-12 weeks.

If we live with the interpretation that a new bull market actually started in May 2005, it's possible that the intermediate trend will last longer.

In that case, there will be a short period of range-trading followed by another surge.

Bulls and bears: A look at key stocks reinforces the impression that indices are more likely to travel down or sideways in the coming week rather than up. Very few big stocks are clearly bullish; most are moving sideways with a few looking to be under selling pressure.

Sector-wise, pharma stocks look likely to see selective investment next week. Abbott, Cipla, Ranbaxy and Wockhardt appear to be in the initial stages of a bull run. Among other major stocks, Concor, Dabur, Hero Honda, Hindustan Zinc, Hindalco, Indian Hotels, P&G, Thermax and Thomas Cook look quite bullish.

The absence of the Reliance group scrips (mildly bearish) and IT majors (indeterminate) from this list means that it will be tough for the indices to find focussed drivers.

MICRO TECHNICALS

DABUR
Current price: 157
Target price: 175

The stock is testing resistance in the range of 160. There was a volume expansion on Friday. If Dabur closes above 160, it is likely to hit 175. Go long, keep a stop at 150.

HERO HONDA
Current price: 693
Target price: 715

The stock made a breakout past critical resistance at 655. it has a short-term target of about 715.

Lack of strong volume action suggests that this price target will possibly not be maintained but it is likely to be hit several times on an intra-day basis. Go long, keep a stop at 670.

RANBAXY
Current price: 536
Target price: 555

The stock has climbed past resistance at 530 with a reasonable volume expansion. It has a possible target of 560 but it will face resistance above 555 and is more likely to halt there. Keep a stop at 530 and go long.

THOMAS COOK
Current price: 545
Target price: 575, 650 (long-term)

The stock has risen on strong volume action in the last two sessions. It has a long-term target of about 650, which may be achieved over the next 8 weeks.

In the short-term, the stock will probably halt at around 575. Keep a stop at 530 and go long.

CONTAINER CORP
Current price: 1165
Target price: 1225

The scrip has made a breakout from a trading range to a new high zone. It doesn't have high volumes but Concor has insufficient float to develop great volume.

The price target with this formation would be 1225 but the lack of volumes implies that this will not be reached or maintained. More likely, Concor will settle between 1190 and 1210. Go long, keep a stop at 1155.

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