Support at 2,550 is key

On the upside, there is strong resistance above 2,900 and very powerful resistance at 3,075.

Settlement week saw a sharp rally with the Nifty climbing 11.9 per cent to close at 2,885.6 points after hitting a low of 2,252 and a high of 2,921. The Sensex rose 12.5 per cent to close at 9,788. The Junior was up 4.6 per cent and the Defty rose 13.05 as the rupee strengthened slightly, though it remained below 49.

Trading volumes were low. This was expected during Diwali despite it being settlement week. The FIIs remained heavy net sellers overall though they bought on Friday. Domestic institutions were net buyers but in much smaller quantities. Advances did outnumber declines with the BSE 500 and the Midcap 50 both rising by 9.6 per cent and 5.4 per cent respectively.

Outlook: The market has support at 2,700 and lower down at 2,575. Both those supports are likely to be tested next week. On the upside, there is strong resistance above 2,900 and very powerful resistance at 3,075. Expect high-volatility trading between 2,550-3,075. A close below 2,500 would be significant and so would a close above 3,075.

Rationale: This looks like a classic bear market rally – sharp, short and low-volume. It will run into massive resistance above 2,900 and it would need to cross 3,100 to be significant. On the downside, if we ignore the intra-day dip to 2,250, the support at 2,550 is crucial. The intermediate downtrend is now into its 11th week so there is room for an intermediate trend reversal. The first positive signal would be a consolidation above 2,550 or even better, a close above 3,075.

Counter-view: The lack of volume is a key negative factor. Intermediate downtrends in a bear market can last longer than 3 months – this could be a short-term rally inside the downtrend. A big volume expansion would be required to take prices above 3,075 and to sustain them at such levels. Diwali is historically a low–volume period and lack of enthusiasm on the part of Indian traders is being exacerbated by strong selling from FIIs.

Bulls & Bears: Every segment of the market rose last week. The BankNifty was a relative underperformer rising only 5 per cent while the CNXIT rose 11 per cent and oversold metals and realty stocks also rallied. Most banks seem to have topped out and ditto for most real-estate stocks. Peninsular may see a late rally in the realty sector, however.

Among pivotals, Reliance Industries does look capable of recovering more ground and Infosys is testing the top of a trading range. Airtel could also continue the bounce. Since these three are heavyweights, the Nifty could rise some more.

Other stocks that could continue the rally include auto majors Bajaj Auto and Mahindra, housing finance major HDFC and Dabur. Sterlite and Hindalco are also possible long punts in the metals sector. We have also seen a rally of sorts in depressed cement stocks like ACC and Ambuja.

MACRO TECHNICALS

Bharti Airtel
Current Price: Rs 653.75
Target Price: Rs 680

 

The stock has recovered on volume expansion from a low of Rs 483. It has the potential to move till Rs 680 or even Rs 700 if the volumes remain high. There is reasonable support at Rs 640. Keep a stop at Rs 640 and go long. Book at least partial profits above Rs 680 and set a trailing stop of Rs 670 if you hold the position beyond Rs 680.

Dabur
Current Price: Rs 81.6
Target Price: Rs 75

 

The stock has bounced from lows near Rs 60. It is testing resistance at Rs 85. However, volumes have been much-reduced and that makes a breakout unlikely. More likely, the stock will retrace till about the Rs 75-mark. It may drop till about Rs 71-72 on intra-day basis. Keep a stop at Rs 86 and go short. Cover below Rs 75.

NTPC
Current Price: Rs 141
Target Price: Rs 160

 

The stock has bounced from lows at Rs 125. If it closes above Rs 144, NTPC has an upside target of Rs 160. The volumes have been reasonable. Keep a stop at Rs 137 and go long. Increase the position if the stock closes above Rs 144. Cover at Rs 160.

Reliance Industries
Current Price: Rs 1,375.5
Target Price: Rs 1,525

 

RIL is making a v-shaped recovery from a bottom at Rs 930 and it generated high volumes on the comeback. If it breaks resistance at Rs 1,400, it will have a clear run till Rs 1,525 and possibly till Rs 1,600. Keep a stop at Rs 1,350 and go long.

Wipro
Current Price: Rs 272.65
Target Price: Rs 300

 

The stock has climbed from Rs 220 (with an intra-day low of Rs 180) on strong volumes. It will hit strong resistance at Rs 280. If the stock can close above Rs 280, it has the potential to move past the Rs 300-mark. Keep a stop at Rs 265 and go long. Book partial profits at Rs 280.