Last week's rally could have enough momentum to test the resistance levels and there may be gains in the early part of the week.
The market rose through a truncated week in what seemed like a classic technical reaction. The Nifty was up 2.9 per cent at 2,695, while the Sensex rose 5.2 per cent to close at 8,756. The Defty rose 2.8 per cent as the rupee recovered a little of the ground it lost in the past couple of weeks.
Volumes remained average, but the advances to declines ratio improved. The broad BSE 500 outperformed the Nifty rising over 4 per cent, while the Bank Nifty and CNXIT also outperformed the broader market. For a change, the FIIs and FIs were both net buyers albeit in negligible volumes.
<B>Outlook:</B> This looks like a short-term correction inside an intermediate and long-term bearish trend. It could have enough momentum to test resistance at the 2,800 levels and the indices may see gains in the early part of the week. A breakout beyond 2,850 would be required to suggest an intermediate trend reversal.
<B>Rationale:</B> In the past few weeks, we have seen a classic pattern of a downside breakout from a trading range with a bottom coming at around projected levels of 2,550. The current movement appears to be the following consolidation-reaction, which should peter out near the level when the breakout occurred, between 2,800 and 2,850. The dominant downwards trend should then takeover and push prices back down till 2,500-2,550 again.
<B>Counter-view:</B> An actual penetration of resistance at 2,850 would mean a failed breakout, which would be good news for bulls but seems unlikely. More likely the supports at 2,500-2,550 will get a workout. If there is another burst of heavy selling, which may be provoked by political uncertainty, the support at 2,500 could break. That would lead to a test of the October lows at 2,250.
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<B>Bulls & Bears:</B> The Bank Nifty and the CNXIT both proved to be key drivers of the market, but there was frantic short-covering ahead of the weekend that pulled up prices across all sectors. Private banks like Axis and ICICI outperformed along with other financial stocks like Reliance Capital. Real estate counters like DLF, HDIL and Akruti also jumped as did Bharat Forge, GMR Infra, Tata Motors and several other beaten-down stocks.
The impetus in the CNXIT segment came largely from Educomp, but there were also significant positive contributions from the service majors TCS, Infosys, HCL Tech and Wipro. In most of these cases however, prices remain well short of the levels associated with an upwards breakout past 2,850. There doesn’t look to be enough genuine aggregated demand to push prices past that index-level.
<B><font color="#990000">MICRO TECHNICALS</font></B>
<B>DLF</B><BR>
Current Price: Rs 153<BR>
Target Price: Rs 135, 158<HR>
The stock is unlikely to travel above the 158-160 mark. After hitting resistance at 158, it could collapse till the 135 level. One possibility: Go long with a stop at 148, book profits at 158, and go short. Second possibility: Wait until DLF hits 158 and then short, with a stop loss at 162 and a target of 135.
<B>ICICI Bank</B><BR>
Current Price: Rs 309<BR>
Target Price: Rs 330<HR>
The stock has a free run until the Rs 330-mark and gained ground on good volumes. Keep a stop at Rs 300 and go long. Book profits at Rs 330. However, if the stock closes above Rs 336, the target is Rs 400. Take a fresh long position in that case.
<B>Tata Motors</B><BR>
Current Price: Rs 162<BR>
Target Price: Rs 170<HR>
The stock has risen steeply on high volumes. It has a likely target of Rs 170. On the downside, there is some support at Rs 154-157. Keep a stop at Rs 155 and go long. Cover the position at Rs 170.
<B>Reliance Industries</B><BR>
Current Price: Rs 1,284<BR>
Target Price: Rs 1,200<HR>
RIL runs into a massive resistance at Rs 1,290-1,300. If RIL closes above Rs 1,300, it has the potential to hit Rs 1,450. On the downside, there is support at Rs 1,200 and lower, at Rs 1,150. Keep a stop at Rs 1,305 and go short, with an initial target of Rs 1,200.
<B>TCS</B><BR>
Current Price: Rs 507<BR>
Target Price: Rs 537<HR>
The stock has risen on strong volumes and performed a bullish inverted head and shoulders formation. This has a target of between Rs 525 and Rs 535. Keep a stop at Rs 500 and go long. Book partial profits above Rs 525 and clear the position above Rs 535.