If the support breaks, there’s a potential downside till 2,500-2,550.
The market plunged in the wake of the Satyam scam. Panic selling in the IT-major triggered selling across the board. The Nifty dropped 5.7 per cent to close at 2,873 points while the Sensex dropped 5.5 per cent to 9,406. The Defty lost a little less as the rupee stayed firm.
Breadth was extremely negative with declines far outnumbering advances. Volumes shot up as the selling accelerated. The FIIs were net sellers while the FIs were almost balanced in their attitude till Friday. Smaller stocks were hit hard as the BSE 500 lost 6.3 per cent.
Outlook: There will be a greater element of inaccuracy over the next couple of weeks as Satyam is replaced in three key indices. However, as things stand, the market is poised just above a key support at 2,850. If the support holds, it could recover till the 3,150 level. If the support breaks, there’s a potential downside till 2,500-2,550. As things stand, the support seems more likely to break.
Rationale: Monday’s session is critical. If there’s no recovery, the index will breach the 2,850 support and close below 2,800. The high volume sell-off suggests the downtrend will continue. In that case, there’s successive support at 2,750 and 2,600, followed by a tertiary support at 2,500-2,550. However, if the market closes above 2,850 on Monday, it should recover back to 3,150.
Counter-view: It is very likely that there will be several sessions of extreme volatility with prices ranging 150 points above and below the pivot level of 2,850. If this occurs, traders will have to wait until a clear trend emerges.
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Bulls & Bears: Trading through the next couple of weeks could be very stock specific, as the results flow in. There is a broad trend of movement out of counters which are in “risky” industries and into counters, which have high management credibility and defensive business models.
Real estate, infrastructure plays and finance stocks have been hard hit in last week’s sell-off. DLF, Unitech and HDIL have all broken key supports along with L&T, IVRCL and JP Associates. Private banks, such as Axis and ICICI, which are reputed to have high exposures to sticky assets, have also been hit.
So have market leaders like Reliance and Bharti Airtel. Despite Satyam, other IT stocks have held up reasonably. Infosys’ Q3 results as always will be a trend-setter for the industry. Defensive plays like Hind Unilever and Dabur saw investment. Sun Pharma also saw investment as it replaced Satyam in the Sensex. Maruti did pretty well.
MICRO TECHNICALS
AXIS BANK
Current Price: Rs 486
Target Price: Rs 460
The stock has crashed on high volume. There is a support at Rs 480 but if that is broken, the next support is at Rs 460. Keep a stop at Rs 491 and go short. Cover at Rs 460. If Rs 491 is broken however, consider going long since the stock could bounce to Rs 520 on short-covering. HERO HONDA Current Price: Rs 802
Target Price: Rs 825
The stock has bounced sharply from Rs 750 levels on decent volumes. It encounters a serious resistance at Rs 820-825 and should have a minimum upside till that level. If it breaks Rs 825, it could rise till Rs 840. Keep a stop at Rs 790 and go long. Be prepared for extreme volatility and possible intra-day highs of Rs 840.
INFOSYS
Current Price: Rs 1,203
Target Price: Rs 1,285
Huge volumes have supported the stock, which has risen ahead of Q3 results, due on Tuesday. There’s a short-term target of Rs 1,285, which could be attained ahead of results. Keep a stop at Rs 1,185 and go long. Cover by end-of-session.
Reliance Capital
Current Price: Rs 480
Target Price: Rs 435
The scrip has seen sales on massive volumes. There’s a likely downside till Rs 435 with some support at Rs 465. Keep a stop at Rs 490 and go short. Book partial profits on one-third of the position at Rs 465 and let the rest ride till Rs 440. Close out below Rs 440.
Unitech
Current Price: Rs 36
Target Price: Rs 30
Short covering pulled the stock back from around Rs 30 on Friday. It’s likely to test support at Rs 30 again. Keep a stop at Rs 39 and go short. Book partial profits at Rs 32 and clear the position at Rs 30.