Swings likely

MACRO TECHNICALS

The intermediate trend is probably moving from bullish to bearish.

The terrorist attacks on London sparked off a sharp reaction on Thursday and this was followed by a partial recovery on Friday. The Sensex closed at 7212.08 points for a nominal gain of 0.02 per cent after setting an intra-day record of 7308.

The Nifty closed at 2196.2 for a nominal loss of 0.71 per cent after hitting a top of 2238. The Defty lost 0.98 per cent as the rupee weakened appreciably in the wake of the attacks.

There were huge volumes accompanying the Thursday sell-off "� this is a bad breadth signal no matter what the underlying reasons may be.

However, the advances-to-declines ratio was net positive for the week. The broad BSE 500 also gained around 0.78 per cent. The put-call ratio spiked on Thursday and stayed very high on Friday.

Outlook: The market is likely to oscillate between 2150 and 2240 (Sensex 7100-7325) through the week and end with net losses. The intermediate trend is probably moving from bullish to bearish. The long-term trend still looks bullish.

Rationale: The support at Sensex 7100 (Nifty 2150) held during the crash on Thursday. There is now a clearly defined support zone near Thursday's lows coupled to an equally clear resistance at 7310 (2240).

The market tested the resistance twice before the attacks, creating a bearish double-top formation. The intermediate trend had been up since early May and it may be mature and due for reversal after 10 weeks.

A downside breakout below 7100 (2150) would signal reversal to a bearish intermediate trend. Momentum indicators such as the RSI and ROC have both displayed lower top formations even as the market rose to new highs "� this is another background signal that suggests the intermediate trend is weak and/or reversing.

Counter-view: Thursday's session was probably a one-off which is unlikely to be repeated soon. The market might take a week or so to consolidate and then continue to move upwards. But this seems unlikely in view of the previous market action during the first three sessions of last week.

Bulls and bears: Despite the fall and despite the uncertain trend, many stocks appear to be independently bullish moving forward. This list includes ABB, ACC, Asian Paints, Cadilla Healthcare, Century Textiles, Corporation Bank, GE Shipping, HDFC Bank, Jindal Steel, L&T, Sesa Goa, Sun Pharma, Tisco, Titan and TV18.

Apart from a revival in steel stocks, there appears to be no obvious pattern in terms of sector however, and the bulk of the market appears either neutral or poised for further falls.

MICRO TECHNICALS

ASIAN PAINTS
Current price: 429
Target price: 450

The stock has started moving upwards on relatively high volumes "� it has never had huge volumes. It should have a short-term target of about 450 and this should be achieved fairly soon. The long-term trend seems excellent and there's a case for booking only partial profits at 450. There is support at 415-418. Keep a stop at 415 and go long

CADILA HEALTHCARE
Current price: 530
Target price: 570

The stock has completed a spike formation with a breakout on high volumes. It should have a target of about 570. There is support at 520. Keep a stop there and go long.

CORPORATION BANK
Current price: 413
Target price: 425

The stock jumped on Friday although it went up on relatively low volumes. It will certainly test its previous alltime high at around 425 although it may fail to surmount this if the overall market trend is bad. The other danger is that the big jump means there is reliable support only far below, around 395. Keep a stop at 390 and go long.

SUN PHARMA
Current price: 611
Target price: 635

The stock has gained steadily with the price line moving up along a 35 degree trendline since last April. It should hold this line and gain till around 635 in the next five sessions. Sun appears a good defensive holding since it's moved up undisturbed by market twitches. Keep a stop at 605 and go long.

SESA GOA
Current price: 700
Target price: 730,765

The stock has moved up from 580 to 700 on extremely heavy volumes in the last five sessions "� other iron and steel stocks have also spurted. Sesa Goa will run into heavy resistance at 730 but it should achieve that price. Indeed, given the volume action it may move further since there's a projected target of 765. Keep a stop at 685 and go long.

Relative strength comparative
CLASSROOM

Every school of analysis provides traders/investors a means of limiting the risk to their investible capital. Technical analysis offers a few wonderful tools "� relative strength comparative (RSC) is one of them. As the name suggests, it is a comparative measure of strength vis-a-vis a benchmark/share/sector.

The best way you can use RSC before you initiate a trade is to check out how your scrip has performed historically against the indices, it's peers in the same sector and/or a separate asset class like, say, commodities. To that effect, RSC helps in determining which scrip would be the most profitable investment. It should not be mixed up with beta (volatility) which measures bilateral movement.

Highly volatile scrips rise or fall faster than the indices, but may not make large net moves in any single direction. On the other hand, high RSC scrips will rise faster than the indices but fall slower than the indices in a downturn.

To that extent, they are solid market out-performers and have a uni-directional movement "� upwards. Needless to say, buying scrips with the highest RSC reading among the available choice of stocks will ensure a greater probability of capital appreciation.

The longer the time that a scrip has enjoyed a high RSC reading, the more appreciation it has witnessed. Such scrips are investors' fancied stocks. Avoid scrips where the RSC has recently surpassed the threshold/equilibrium line.

The logic being "� a trend reversal or whipsaw will take the stock back to where it started from. So stick to stocks that have stood the test of time.

Like any other oscillator, this one, too, should not be taken as a panacea. Other technical considerations must also be taken into account to ensure a sound trade / investment.

Vijay Bhambwani,
Chief excutive officer, BPSLindia.com