If there is large-scale profit-booking, the market would react down till the 2,850 level before it finds reliable support.
The market saw a surge through settlement week with an upside breakout that led to double-digit gains. The Nifty closed at 3,108.65 points for a rise of 10.7 per cent while the Sensex rose to 10,048 points for a gain of 12 per cent. The Defty was up 10.4 per cent as the rupee lost a little ground.
Breadth signals were good with advances outnumbering declines and volumes rising in derivatives and spot markets. Both FIIs and FIs were net buyers. All major market indices rose substantially with the BankNifty up a huge 19 per cent while the broad BSE 500 was up 10.6 per cent.
Outlook: The market made an upside breakout. It has almost fulfilled its initial target of Nifty 3,150-3,200. It will run into increasing resistance next week and this move could terminate with double or multiple tops in the 3,250 zone. If there is large-scale profit-booking, the market would react down till the 2,850 level before it finds reliable support. Volatility is liable to be high.
Rationale: There’s heavy resistance above 3,200. This is a short-term rally inside a long-term bear market. That makes a reaction more likely. Impending elections are also likely to have a bearish effect. Reactions should find support between 2,850-2,950.
Counter-view: If the rally pushes past the 3,250 mark, it may have the momentum to reach 3,575. This seems unlikely. If this does happen, we may see the set-up of a big bull trap, followed by a crash sometime during elections. Statistically speaking, a bull market during elections seems against the odds. It has occurred only once since 1991, in the post-Kargil 1999 elections.
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Bulls & bears: Most classes of stocks went up. The Nifty, Sensex and Junior all registered double-digit gains. Banks rose disproportionately (19 per cent) as mentioned above and IT scrips under-performed somewhat with the CNXIT up “only” 7 per cent. Volumes remain heavily concentrated in the F&O stocks with the Midcaps-50 up around 8 per cent, less than all the heavyweight indices.
As such, given decent breadth and improved price lines and volumes, the obvious recommendation is, stay long. However, the likelihood of high resistance next week makes trading difficult. A sudden switch in trend could lead to bulls being trapped, while bears would be taking high risks in going short against the prevailing trend. Keep tight stops regardless of target stocks and direction.
MICRO TECHNICALS
ICICI Bank
Current Price: Rs 385
Target Price: Rs 355
The price has risen along a 45 degree trendline since early March. However, volumes have eased off in the past week. This could mean that the stock is ripe for a reaction. Keep a stop at Rs 400 and go short. On the downside, the next reliable support is at Rs 350-Rs 355.
Reliance Communications
Current Price: Rs 183.75
Target Price: Rs 215
The stock has risen sharply on increased volumes. It has strong resistance at current levels. However, if it closes above Rs 185, it has the potential to move till around Rs 215. Keep a stop at Rs 180 and go long. Add to the position if there’s a close above Rs 190. Book profits above Rs 210.
RelInfra
Current Price: Rs 568
Target Price: NA
The stock has seen a resurgence in volumes but it has a lot of resistance at the current levels and congestion until around the Rs 585 mark. On the downside, the nearest support is at Rs 551. Go short with a stop at Rs 575 and a target of Rs 551.
Tata Motors
Current Price: Rs 189
Target Price: Rs 210
Coincident to the release of the Nano, the stock has made an almost vertical breakout on a sharp volume expansion to reach its 2009 high. It has the potential to rise till around the Rs 210 mark. If there’s a reaction, it could fall till Rs 160. Keep a stop (Rs 183), go long.
Sail
Current Price: Rs 102.8
Target Price: Rs 110
The stock has made an upside breakout on high volumes by closing above the 95 level. It has a potential target between Rs 105- Rs 115. Keep a stop at Rs 97 and go long, adding to the position above Rs 105. Start booking profits at around the Rs 110 mark.