The Nifty completed an upside breakout and now has a target between 3,150-3,250.
The market shot up last week with the Nifty climbing 7.6 per cent to close at 2,921 points while the Sensex rose over 8 per cent to close at 9,690 points. The Defty was up 10.7 per cent as the rupee made a dramatic recovery.
Volumes remained moderate though they improved from recent levels. The ratio of advances to declines was positive. Foreign institutional investors were net buyers through last week for a change although domestic institutions were sellers. The broad BSE 500 was up 7.2 per cent and smallcaps and midcaps also made decent gains.
<B>Outlook:</B> The Nifty seems to have completed an upside breakout from a trading range and it now has a potential target of somewhere between 3,150-3,250. Momentum slowed on Friday so there is a chance of consolidation between 2,800-3,000 before the next short-term uptrend takes hold.
<B>Rationale:</B> There seems to have been an intermediate trend reversal with a pattern of higher lows since the 2008 bottom of 2,252 was hit in late October. That was followed by range-trading between 2,500-2,850 through November and early December. The chart formation suggests the target projection is reliable but volume expansion was not ideal.
<B>Counter-view:</B> There is a chance that the breakout will fail precisely because the volume expansion is inadequate. If that occurs, support at 2,800 will be broken and the market will fall back into a range-trading pattern between 2,500-2,800. However, the excellent breadth offers hope that the upside targets will be attainable.
<B>Bull & Bears:</B> The breadth of the movement is what makes it likely that 2008 will end on a happier-than-expected note for bulls. With the notable exception of the IT sector, every other industry segment was bullish this week. Many IT majors made downside breakouts as the rupee strengthened drastically – Infosys, Wipro, Satyam and TCS all look set to lose more ground. This sector could be a drag on next week’s overall bullishness.
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Real estate saw a big bounce with stocks like DLF, Prasvnath, HDIL and Purvankara all seeming capable of gaining further ground. Oil and gas stocks did well as crude prices continued to decline. Reliance, RNRL, Essar Oil, BPCL, HPCL, IOC and MRPL all looked strong.
PSU Banks did much better than the private banks but the sector saw strong overall sentiment. The likelihood of falling interest rates was also reflected in housing finance stocks like HDFC and LIC Housing and in NBFCs like Reliance Capital.
Other rate sensitive stocks such as auto majors like Bajaj Auto, engineering and construction majors like L&T did well. Bullish interest was also scattered across other sectors with winners such as Aurobindo Pharma, Praj Industries, Renuka, JP Hydro, Reliance Power, RIL and RComm visible.
<B><font color="#990000">MACRO TECHNICALS</font></B>
<b>DLF</b><br>
<b>Current Price:</b> Rs 277<br>
<b>Target Price:</b> Rs 300<hr>
There has been a sharp pullback on high volumes. A bullish saucer formation has almost been completed. There could be a target of Rs 300 but there is also strong resistance above the current price. Keep a stop at Rs 270 and go long.
<b>Essar Oil</b><br>
<b>Current Price:</b> Rs 87<br>
<b>Target Price:</b> Rs 105<hr>
The stock has a rising priceline and volume expansion. It is testing resistance just above the current prices. A close above Rs 90 would set up a target of about Rs 105. While intra-day volatility is high, there is reasonable support at Rs 84-85. Keep a stop at Rs 85 and go long.
<b>Infosys</b><br>
<b>Current Price:</b> Rs 1,105<br>
<b>Target Price:</b> Rs 1,040<hr>
The stock has made a downside breakout from a trading range. It has a potential target of Rs 1,040 and if the rupee strengthens further, it could exceed that target. Keep a stop at Rs 1,125 and go short. Start covering at Rs 1,050.
<b>Petronet L&G</b><br>
<b>Current Price:</b> Rs 35<br>
<b>Target Price:</b> Rs 40<hr>
The stock has made an upside breakout on massive volumes after completing a bullish inverted head & shoulders formation. It has a likely target of about Rs 40. Keep a stop at Rs 33 and go long. Start covering above Rs 38.
<b>Reliance Capital</b><br>
<b>Current Price:</b> Rs 531<br>
<b>Target Price:</b> Rs 600<hr>
The stock made a promising breakout on Friday when it closed above resistance at the Rs 520 mark on strong volumes. It has a likely target of Rs 600. Keep a stop at Rs 515 and go long. Be prepared for extremely high volatility and book partial profits at Rs 565 where there is some resistance.