Resistance at 5,330

Market could test support at 5,200

The market pushed to a new high and then eased back to the previous week’s levels. The Nifty closed at 5,290.5 points for a nominal gain of 0.2 per cent while the Sensex was up 0.3 per cent at 17,644 points. The Defty rose 1.1 per cent as the rupee continued to strengthen.

Breadth was neutral and volumes remained on the low side. Smaller stocks outperformed the pivotals. The Junior was up 1.3 per cent while the Midcaps rose 0.7 per cent and the BSE 500 was up 0.7 per cent as well.

FIIs continued to be strong net buyers while domestic institutions remained net sellers in small quantities.

Outlook: The market established a new 52-week high but momentum and background signals were quite weak. There is strong resistance at 5,330 levels with strong support between 5,200 and 5,250. Most likely the market will remain confined to range-trading between 5,200 and 5,350. If volumes remain low, a downside breakout is more likely. A close below 5,200 could push the market down till 5,100.

Rationale: An uptrend that is not backed by volumes or by significant breadth is unlikely to be sustainable. Momentum indicators aren’t strong either. The intermediate trend has been up for nine weeks now and it could be due for a reversal. The major market trend is confirmed as bullish due to the new high, but that doesn’t preclude a reversal in intermediate or short-term trends.

Counter-view: It is a major bull-market. DII selling allied to trader selling has been a dampening factor despite strong FII buying. There could be more domestic money flowing into stocks with the new fiscal commencing. The usual tax-related liquidity crunch may be easing. Intermediate trends can last up till 12-14 weeks if they are aligned with the major market trend, as in this case. The short-term trend isn’t clearly negative. One chart reading would suggest an upside till 5,450 is possible. At the risk of tedious repetition, the issue is volumes. A volume expansion is required to force the market up.

Bulls & Bears: The bulls cycled through various sectors, buying, booking profits and moving on. At various times, financials, energy, real estate, metals, cement, engineering and construction and auto stocks saw support. All the above sectors also saw selling. If this choppy pattern continues, we will see tightly ranged trading with very stock-specific movements.

IT was the one sector that took a hammering through the week and it was by far the worst performer. The CNXIT lost 2.7 per cent with all the majors hit. This is a bad signal since Infosys and TCS will soon be coming through with 2009-10 and March quarter results and 2010-11 advisories. However, there was short-covering ahead of the long weekend. The picture with respect to banks is mixed. Private sector majors like ICICI and HDFC underperformed the PSUs and pulled the BankNifty back.

MICRO TECHNICALS

ABAN OFFSHORE
Current Price: Rs 1,199 Target Price: Rs 1,300 

The stock has hit reasonable support and is now picking up volumes as well as seeing a price rise. It has the potential for a pullback till around the Rs 1,300 level. Keep a stop at Rs 1,165 and go long. Increase the position beyond Rs 1,220.

 

BHARTI AIRTEL
Current Price: Rs 302 Target Price: Rs 290

The stock has seen heavy selling in the past two sessions. It has a little support at current levels but if it closes below Rs 300, it will probably drop to at least Rs 290 and maybe, lower, till around Rs 280. Keep a stop at Rs 307 and go short. Increase the position below Rs 299. Book 75 per cent profit at Rs 290 and reset the stop to Rs 293.

 

RELIANCE INDUSTRIES
Current Price: Rs 1,092 Target Price: Rs 1,070

The stock is hitting resistance at around the Rs 1,100 mark. It is likely to slide till support at around Rs 1,070 and there is a good chance if it closes below Rs 1,070 that it will fall till around Rs 1,020. Keep a stop at Rs 1,105 and go short. Book 50 per cent profit at Rs 1,070 and reset the stop loss to Rs 1,080.

 

TCS
Current Price: Rs 807.80 Target Price: Rs 755

The stock has broken several supports amidst heavy selling. It is likely to slide till around the Rs 755-760 mark. Keep a stop at Rs 815 and go short. Increase the short position below Rs 795. Start booking profits below Rs 765. Be prepared for extra volatility.

 

TATA MOTORS
Current Price: Rs 777.65 Target Price: Rs 815

The stock has bounced from around Rs 715 and is likely to test resistance in the Rs 815-820 zone again. Keep a stop at Rs 765 and go long. Be prepared for a little extra volatility. Clear the position above the Rs 810 mark.